The asymmetry of investment gain vs loss to break even

Since the stock markets are struggling, it’s important to remember that you need to make more money on your investments than you lose in order for them to be profitable.

For example, some people may think that if your investment loses 25% of its value, then you need to gain 25% to break even. However, the answer is no; you actually need a 33% return on investment to make up for the loss.

The graph below demonstrates the percentage of investment you would need to make in order to compensate for any losses.

The asymmetry of investment gain vs loss to break even

As you can see from the graph, if you lose 50% of your investment then to break even, with the remaining amount, you need to double the money or percentage gain is 100%.

In the event that you lose 95% of what you invest, then you basically need to 19X your money just to break even 🙁

So, the moral of the story is to be extra careful with your investments and not take on too much risk. And if you do lose money, don’t expect to make it all back quickly – it may take a lot longer than you think!

Chandler

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