If you’re an investor who wants to avoid big losses while still aiming for strong results, managed futures could be a great fit.
Unlike ETFs, mutual funds, or index funds tied to the S&P 500, which can face big short-term drops, managed futures offer a steadier ride. Many people invest in managed futures alongside traditional investments to help balance risk.
In this guide, we’ll explain what “drawdown” means and how managed futures usually have lower drawdowns, making your investment journey smoother.
What Is Drawdown?
In simple terms, drawdown is how much an investment drops from its highest value before going back up again. It shows the risk and losses you might face during a rough market.
For example, if you invest $100,000 in a fund and, during a tough year, it drops to $70,000, that’s a drawdown of 30%. It’s the gap between the highest value ($100,000) and the lowest point ($70,000).
If the market bounces back and your investment climbs to $110,000, the drawdown ends once it passes the original peak of $100,000. Now, not only has it recovered, but you’ve also gained more money than you started with.
Drawdown Rate of The S&P 500
The S&P 500 usually goes up over time, but it still sees big drops. Since 1980, more than half of the years had at least one double-digit dip. On average, the market falls by 13% at some point each year.
It’s not uncommon for stock investments to lose 50% or more in value during a tough year.
Image source: Calamos
Even with those drops, the market ends up positive 64% of the time, even in years with big declines. That means almost two-thirds of the time, the market bounces back and grows.
These dips are usually just short-term setbacks in the bigger picture of long-term growth. The ups and downs actually show how strong the market is, as it always climbs higher after a fall, even if it takes time to get there.
To make your investments even more stable, you can diversify your portfolio by investing in managed futures. It’s a smart and safe way to reduce the impact of those market swings.
Managed Futures Drawdown Is Less Than 5%
Managed futures accounts are great for managing risk. That’s why they usually have lower drawdowns than traditional investments. In fact, the average drawdown is less than 5%, according to a trusted source.
If you want to steady your portfolio and protect against market swings, managed futures are a solid choice. You’ll face far less ups and downs compared to index-linked investments – about ten times less, in fact.
Why Managed Futures Offer Lower Drawdowns
Managed futures managers use a mix of strategies to make money whether markets are up or down.
They predict how prices will move across different assets that don’t follow the same trends, then decide whether to buy (go long) or sell (go short). Being able to go both ways helps reduce losses when markets take a hit.
In contrast, traditional stock investments, like those tied to the S&P 500, can only take long positions, so they have a tough time making money during bear or flat markets.
Managed futures, on the other hand, aren’t tied to stocks or bonds, so they often do well when other assets are struggling. This makes them a great way to steady your returns and reduce short-term ups and downs.