Why Drawdowns Matter More Than Most People Realize
Let's say you have $100,000 invested and the market drops 50%. Then it comes back up 50%. You're back to even, right? Wrong. You are at $75,000.
A 50% loss requires a 100% gain just to break even. Losses hurt you more than equivalent gains help you and the math is not close.
Consider what happened recently in tech. Netflix was down over 60% from its highs. Amazon was down roughly 50%. Meta lost nearly three quarters of its value. Investors who were heavily concentrated in those names did not just need a good year to recover. They needed an extraordinary year. Some are still waiting.
The damage compounds in retirement in a way it does not during accumulation. When you are drawing income from a portfolio that is simultaneously falling you are locking in losses permanently. We have seen this doom spiral play out and it is genuinely ugly.
This is why minimizing drawdowns is our primary objective, not maximizing returns. A properly diversified portfolio will almost always have something that is down. That is not a problem. That is the whole point. When we see a client statement that is all green our first instinct is not celebration. It is concern.
The classic example is 2022. That year both stocks and bonds got hammered simultaneously as the Federal Reserve raised rates aggressively. Target date funds got crushed from both directions. There was nowhere to hide if your entire portfolio was built on that template.
Our Approach
We manage client portfolios using an institutional-grade asset allocation process. Rather than making gut-level calls on which sectors look attractive or reacting to headlines, we use a systematic framework that continuously evaluates economic data, market signals, and risk indicators to make disciplined, rational portfolio adjustments.
Within each asset class we use actively managed strategies. Dedicated investment professionals including CFAs and market technicians are continuously analyzing what the data is telling them and adjusting accordingly. Not once a year. Continuously.
The goal is not to chase the highest possible return. The goal is to build a portfolio that participates meaningfully in market gains while actively managing the downside. A portfolio that captures 80% of the upside but only 50% of the downside will outperform a more aggressive portfolio over a full market cycle.
We also have access to asset classes and strategies that you cannot access through a typical brokerage account. Things such as structured notes, alternative strategies designed to lower correlation to traditional markets, international diversification using currency-hedged vehicles, and for clients who want exposure, cryptocurrency allocations within a risk-managed framework.
Where Your Money Actually Sits
When we manage a client's investment accounts, those assets are held at Fidelity or Schwab, independent, third-party custodians, not with Pace Financial directly. They hold the assets and execute the trades we direct. We never take custody of client funds ourselves.
This structure exists to protect you. You always have direct access to your own accounts through Fidelity, with your own statements and your own login, entirely separate from the advice we provide. It is a standard, SEC-regulated arrangement, and we think it is one worth understanding rather than taking on faith.
What This Means for a Teacher
Your CalSTRS pension is already providing guaranteed lifetime income that does not fluctuate with markets. That foundation changes how we think about your investment portfolio.
Because you have that income floor your portfolio does not need to be built around survival. It can be built around growth, flexibility, and legacy. We build every investment plan around your full picture, your pension, your 403(b), your timeline, your goals — see our full retirement income planning approach →.
Past performance does not guarantee future results. All investing involves risk including the potential loss of principal. Full disclosures are provided to every client before any investment decisions are made.