Depth vs Duration

A friend sent me two factsheets last night. Both funds showed a max drawdown near minus 20 percent. Same risk, he said.

So I opened the NAV charts side by side. One fund fell 20 and reclaimed its old high in seven months. The other fell 20 and sat below its old high for twenty six months. Same depth. Completely different experience of owning it. And only one of those two numbers was printed anywhere.

The math of the wait is worse than people expect. A 20 percent fall needs a 25 percent climb just to break even. If what you hold compounds at 11 percent a year, that is roughly 26 months of statements below the old high. A 40 percent fall needs 67 percent back. Call it five years. The fall is over in weeks. The wait is measured in years.

And the wait is where plans actually die. Panic selling gets all the attention because it is dramatic. A red week, one bad decision. Quiet quitting is slower. Month 14 of flat. The SIP gets paused, just for now. A small withdrawal that was going to be temporary. Nobody calls any of it selling at the bottom. The compounding stops all the same.

Honest version: if you are still accumulating, the long flat stretch is the discount window. Every instalment below the old high buys cheaper units. But that only pays if you keep buying through it, and that takes a kind of patience no drawdown number on a factsheet can measure.

Every risk questionnaire asks what you would do at minus 20. Almost none ask what you would do after two years of nothing. Answer both before you pick: