Investment returns

 

 

Let’s say we have $1,000 invested in the stock market.  The price goes down 50%.  Bummer.  A day later, the price goes back up 50%.  Cool.  We just made our money back.  Right?

 

Nope.  It’s all about the base.  In dollar amounts, we lost $500 by losing 50% of $1,000 on the way down.  But on the way back up, we only got back $250 by gaining 50% of the $500 base the price had fallen to.

 

Over the long term, the stock market has always trended up, in spite of its short-term fluctuations.  When the market is on the way back up after a loss though, we need to see much better percentage gains than the losses we saw on the way down for us to get back even to where we were before.

 

We are going to get back even to where we were before, right?