Submitted by nsscadmin on
When you look at your daily investment gains or losses it is often reported in percentages. Maybe the markets had a good day, and your holdings are up 5 percent on the day. Conversely maybe it was a bad day for investors and your holdings are down 5 percent on the day. If your investments do decline by 5 percent one day how much will they need to increase the following day to get back to even? If you said simply they have to go back up 5 percent you may want to look at the math again. Let’s look at it.
Let’s say when the markets open on Monday, your investments are worth $1,000. The market closes down by five percent and at the end of the day your investments are now worth $950. You start Tuesday with your investments valued at $950. If they were to increase by five percent on Tuesday, you would not be back to $1,000. Here’s why:
Five percent of $950 is $47.50. If your investments rose by 5 percent on Tuesday, then they would be worth $997.50 and you are short of the original $1,000. To get back to even, you need to gain $50 on Tuesday so your investment at the end of Monday would need to increase by 5.26 percent.
When assessing your investments always make sure you know what time frame you’re looking at so you know what your gains and losses truly are. Calculating gains and losses by day, week, month or year may cause your percentages to look different.