![]() The early 2000’s to most investors stirs up memories of the tech bubble as well as the 9/11 attack on the world trade center. Most categories recovered within 24 months, but there was one category of funds that did not recover during this time period (Global Fixed Income), and one category that did not experience a drawdown (Global Fixed Income Balanced) – denoted by the red ‘x’ on the chart. During this time, the maximum drawdown amongst popular fund categories ranged from -8% (Canadian Fixed Income Balanced Funds) to -30% (North American Equity Funds). The 1990’s brought with it the end of the Cold War, the Persian Gulf war, the Asian currency crisis, and the creation of the North American Free Trade Agreement. Also included is a table of returns over the timeframe and months where the peaks and valleys occurred. Fund categories on the bottom right of the chart can be regarded as more conservative. The closer a fund category is to the bottom, the faster it recovered from its drop. The closer a category is to the left, the more severe the drawdown. The charts below plot the maximum drawdown (horizontal axis) against the recovery period (vertical axis). Although COVID-19 may be dominating investor outlook now (a term known as recency bias), remember that we’ve had large swings in the past and ultimately it is risk tolerance that should determine what asset class mix is suitable an investor’s long-term financial plan. Maximum drawdown can be a very good ‘gut check’ to help an investor understand whether an asset class is too risky for her liking. The subsequent period is known as the recovery phase, and we can measure this in months to determine the amount of time after a correction it takes for an investment to recover its peak value. ![]() In financial terms, this is the value of portfolio lost from peak to valley during a market correction. ![]() To do this, we’ll look at a key statistic: maximum drawdown. In effect, this shows that that over the long term, the value of investments has gone up, with many peaks and valleys along the way. Each line represents the average returns of funds in that category with a theoretical starting investment of $10,000 CAD. It does not store any personal data.The above chart depicts the long term returns of various popular mutual fund categories within Canada. The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. ![]() The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". The cookie is used to store the user consent for the cookies in the category "Analytics". ![]() These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. ![]()
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