Personal Finance Tip - Investment Return Calculation
With the October stock market decline, let’s reexamine the mathematics of investments.
A drop of 10% and a recovery of 10% doesn’t mean you have broken even. In this case, -10% + 10% does not result in a 0% change to your portfolio.
The greater the drop in your portfolio, the greater increase is needed to break-even.
Example 1: Your $100,000 portfolio drops by 10% to $90,000. You will need a 11.11% (10,000 divided by 90,000) increase to return to $100,000.
Example 2: Your $100,000 portfolio drops by 20% to $80,000. You will need a 25% (20,000 divided by 80,000) increase to return to $100,000.
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