Bond Volatility Letter

"Matthew Allgood, MBA, CRPC®, CFP®, CKA®" |

After back-to-back quarters of down-trending equity markets, investors can see glimmers of hope as the recovery appears to gain strength. The S&P 500 Index closed last week up over 16% from the bottom of the sell-off back in June. The index is still about 10% below the previous all-time high point; the current drawdown in the S&P 500 is still hovering around correction territory.


While the market has recovered over 16% from its bottom, it still needs another 12% to the upside in order to reach its previous all-time high, or a total of 30.8% from the bottom. Compare this figure to the only -23.5% that was lost. This illustrates the math of loss, where the gain required to break even increases as losses are extended.


The Math of Loss

Chart, line chart

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Source: Bloomberg, Redwood. Investor cannot invest directly in index shown. Data as of 8/12/2022.


Portfolio risk management is not simply about helping individual investors withstand the initial -23.5% sell-off, but also the substantial 30.8% gain required just to break even. Your risk-budgeted portfolio is designed to prioritize managing risk and seeks to sidestep drawdowns using tactical mandates. Avoiding the worst of a drawdown can minimize the pain of capital loss and thus require a smaller recovery to break even and help you approach your financial goals.


  • We use strategies that incorporate dynamic tactical mandates seeking to reduce drawdown risk.
  • The portfolio compositions are rooted in quantitative analysis to adhere to risk thresholds.
  • We believe the key to sustainable investment success is the preservation of investor capital.