What is drawdown recovery time?

Drawdown recovery time is the time an investment needs to climb back to its previous high after a fall. Together with the depth of the fall, it describes the full cost of a crisis: not only how much was lost, but for how long the money stayed below where it had been.

A drawdown has three parts:

the decline, from the peak to the low,
the recovery, from the low back to the old peak,
the underwater period, the whole time from the peak until it is regained.

How long a recovery needs

Losses and gains are not symmetric. After a fall of $d$ , the gain needed to return to the peak is:

g = \frac{1}{1 - d} - 1

At an average yearly return $r$ , that gain takes roughly

T \approx \frac{\ln(1 + g)}{\ln(1 + r)} = \frac{-\ln(1 - d)}{\ln(1 + r)}

years, counted from the low.

A simple illustration

A portfolio falls 40% and then grows at 7% a year:

g = \frac{1}{0.6} - 1 \approx 66.7\% \qquad T \approx \frac{\ln(1.667)}{\ln(1.07)} \approx 7.5 \text{ years}

A fall of 20% at the same rate needs a 25% gain, or about 3.3 years. The recovery time grows much faster than the size of the fall.

The sample portfolio's own time-weighted return, with its deepest fall marked: −24.7%, from December 2024 to April 2025. These are that portfolio's figures, not yours.

What history shows

Recoveries have varied enormously:

After the crash of early 2020, global stock markets were back at their highs within months.
After the 2008 financial crisis, world equity indices measured in euros took around five years to regain their 2007 highs.
After the dot-com crash of 2000, the technology-heavy Nasdaq needed around fifteen years to regain its peak.
Japan's stock market took more than three decades to regain its 1989 peak.

Dividends shorten recoveries: measured as total return, with dividends reinvested, most indices recovered noticeably faster than their price charts suggest. Regular savings shorten them further for the investor, because purchases made near the low are the first to recover.

How to read it

Depth and length together. A 20% drawdown that lasts five years can be harder to bear than a 35% drop recovered within a year.
Diversification shortens recoveries. The longest recoveries in history belong to single countries and single sectors; broad, global portfolios have recovered faster.
The horizon decides. Money needed within a few years cannot count on a recovery arriving in time, which is why it usually does not belong in stocks.

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