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 🙁

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