Why drawdowns don’t add up across accounts

Adding is wrong

Suppose you run two accounts, A and B, and each has had a worst moment of 10% below its peak. It is tempting to say your money has been 20% down. It has not, for two reasons.

First, a percentage is a share of something. 10% of a small account and 10% of a large one are different amounts of money, and adding the percentages treats them as if they were the same size.

Second, the two worst moments may never have happened at the same time. If A hit its low in March and B in August, there was never a day when you were down on both.

Averaging is wrong too

The average is closer, but it still assumes the accounts are the same size and fell together. Here is a made-up example where both assumptions fail at once.

Account A is 20% down, account B is 5% up, and the money you have is exactly what you started with. Adding the drawdowns says 20%, the average says 10%, and the right answer is that the portfolio is not down at all. A large account running well can carry a small one that is struggling, and the reverse is just as true.

Measure the portfolio as one fund

The method that works is the one used for a single account in NAV per unit, explained, applied to all your accounts together:

1. At each moment, add up the equity of every account, in the same currency.
2. Treat money moving in or out of any account as a deposit or withdrawal of the portfolio, so it buys or sells portfolio units.
3. Divide the total equity by the portfolio's units. That is the portfolio's NAV per unit.
4. Track the highest NAV per unit so far. Drawdown is how far the current NAV sits below it.

The result answers the question you actually care about: at its worst, how much of the money I had in the market was gone?

One detail matters in practice. Accounts do not all report at exactly the same second, and a terminal can miss a report. If one account has no figure for a moment, its last known equity is used, so a gap does not look like the money vanished.

When accounts join or leave

Connecting a new account adds its equity to the portfolio. That is money arriving, not profit, so it counts as a deposit and buys portfolio units at the current price. Deleting an account works the other way: its equity leaves as a withdrawal.

This is why your portfolio's return does not jump when you connect an account that already holds 10,000 USD, and does not crash when you remove one.

Accounts in currencies other than USD and USC (US cents) are listed with a warning and are not counted in the portfolio yet, because their value cannot be added up without exchange rates.

This post is for education and is not investment advice. Examples use made-up figures, not anyone’s results. Trading carries risk.