Risk · 6 min read

Drawdowns: how far portfolios fall and how long recovery takes

An average return says nothing about the ride. A drawdown measures the worst stretch: how far a portfolio fell from its high, and how long it took to get back.

Canadian figures after inflation, in CAD, unless noted. Updated October 2026.

What a drawdown is

A drawdown is the drop from a portfolio's previous high to a later low, as a percentage. If $100,000 falls to $60,000, that's a 40% drawdown, no matter what the long-run average was. The portfolio is "underwater" until it gets back above $100,000, and the time that takes is often the harder number to live with.

Two details change the picture a lot. First, whether the figures count inflation. A portfolio can be back to its old dollar value while still buying less than it did at the peak. Second, whether dividends and interest are included. Price-only charts make recoveries look slower than they were for someone who reinvested.

Global stocks: an all-in-one style mix of world stock markets, total return, from Ken French data converted to CAD. Bonds: a Government of Canada bond estimate built from Statistics Canada yields. Both deflated with Canadian CPI.

Inflation makes falls deeper and longer

Measured in plain dollars, the global stock mix's worst fall since 1977 was about 40%. After inflation it was about 44%. The gap looks small, but it shows up in the recovery: time underwater is longer when the finish line keeps moving up with prices.

Inflation also explains why "safe" assets have drawdowns of their own. Canadian bonds lost about 32% of their buying power between 1977 and 1981, when inflation ran ahead of interest rates. They lost about 30% again between 2020 and 2023, and at the end of 2025 were still about 24% below their 2020 high after inflation. Even Canadian treasury bills, which never lose dollars, lost 45% of their buying power between 1935 and 1952, and didn't regain their 1935 level until 1986.

How the mix of stocks and bonds changes the worst case

Combining stocks and bonds has historically made the worst stretch shallower, though not in a straight line. The table shows each mix's deepest fall after inflation and the longest it spent underwater from 1977 to 2025, rebalanced back to its target every month.

Global stocks (Ken French data, in CAD) and a Government of Canada bond estimate (Statistics Canada yields), deflated with Canadian CPI. Summary figures calculated for this site.

Two things stand out. The all-bond portfolio was not the calmest one: its 1977–81 inflation loss was deeper than a 40/60 mix's worst fall. And the middle mixes did best on this measure because stocks and bonds rarely had their worst periods at the same time. Rarely is not never, which is the next point.

Famous crashes, for scale

The last 50 years in Canada include some hard falls, but longer histories elsewhere include worse ones:

• US stocks after 1929. Including dividends and after inflation, they fell 79% from August 1929 to June 1932 and took about 15½ years to recover. Counting price alone, the S&P 500 needed 25 years, which shows how much reinvested dividends shortened the wait.
• Japanese stocks after 1989. In yen, with dividends, they fell 66% by 2003 and took about 28 years to regain their 1989 peak.
• Canadian stocks in 2008. A 43% fall, with dividends, recovered in about 2½ years.

The spread is the lesson. A fall of 40% can be over in a few years or last a generation, depending on what was owned and what happened next. A single country's market carries more of that risk than a global mix.

Bonds as crash insurance, and when it failed

In most stock crashes of the past 50 years, Canadian bonds rose while stocks fell. From August 2000 to March 2003, the global stock mix lost about 40% in dollars while Canadian bonds gained about 19%, so a 60/40 mix lost about 20%. From May 2007 to February 2009 it was a similar story: stocks about −40%, bonds about +17%, 60/40 about −21%.

The insurance failed in 2022. Inflation and rising interest rates hit both at once: from December 2021 to September 2022, stocks fell about 18% and bonds about 10% in dollars, and prices rose about 6% on top. Over calendar 2022, after inflation, stocks lost about 17% and bonds about 16%. The same thing happened on a smaller scale in 1981. The common thread is inflation: bonds have historically cushioned crashes driven by recessions and panics, not ones driven by rising prices and rates.

Why drawdowns matter more than averages for real people

A long-run average is only earned by someone who stays invested through the worst stretch. That is why a common approach is to judge a mix by its worst fall and its longest time underwater, and to ask honestly whether that would have been bearable, rather than by its average return alone. The interactive guide's slide on what each mix felt like lets readers slide through the mixes and see their worst years side by side.

Educational, not investment advice. The same information is shown to every reader and doesn't consider anyone's situation. Past returns don't guarantee future results.