Back to Basics: Recovering from Negative Returns
Alright, let’s get back to basics.
If I lose money in my investments, how much do I need to make back? If I lose 10%, does my investment need to go up by 10% to get back to where I was? Let’s have a look at this example:
You invest $10,000 in the share market. The market falls by 10%. Your current investment is now only $9,000. To get back to where you started, you need to make $1,000 right? So:
$1,000/$9,000 = 0.1111 = 11.11%
In other words, you actually need to make 11.11% to get back to where you started.
Have a look at another example:
The stock market had a horrible crash. Your investment of $10,000 has halved (50% decline). It is now $5,000. Thus, you need to make $5,000 from that investment to get back to where you started. So:
$5,000/$5,000 = 1 = 100%
In other words, if your investment declines by 50%, you then need to make a 100% return to get back to where you started.
I’ve done the calculations below to determine how much you need to make, percentage-wise, if your investment declines by a certain amount. Get your calculators and try it out.
You lost 10% = You need to make 11.11%
You lost 20% = You need to make 25%
You lost 30% = You need to make 42.86%
You lost 40% = You need to make 66.67%
You lost 50% = You need to make 100%
You lost 70% = You need to make 233%
You lost 90% = You need to make 900%
You lost 100% = Your capital is gone!
You lost 120% = You now owe money :(
2 Responses to “Back to Basics: Recovering from Negative Returns”
Leave a Reply
haha those are good examples of what is expected to achieve in recovering, but what about ‘how to’?
any general guidelines of your own?
You mean strategies on how to recover back the money?
Hehe, that’s actually very tough to explain. It also depends on where your money is located. If your money is invested in unit trust for example, you can either leave the money there and let it recover itself, or you exit and buy into other funds.
It’s kind of hard to get into details over here.
But if you’re talking about specific strategies, there are literally thousands, if not millions of ways on how money can be made in the financial markets. A lot of books covering that topic are available :)
Sorry I can’t offer much help.