If the account is down 20%, what rate of return over the next year do we need to get to be even, in other words make back the 20% we lost? The rate of inflation in this case is zero.


25% return as what you'd want to do is invert the 80% that is left to get the figure. Thus, just compute .8^-1=1.25 or 25%.

Now, to walk this through in a bit more detail for those that found the above to be a bit mystical:

  • Consider starting with $100 and we want to end with $100.
  • Now, the account goes down 20% which means that we are at $80 as 100*(1-.20)=80.
  • Now, to get an addition $20 back, we could take the fraction 20/80=1/4=.25 or 25% as you want to get a quarter back to get whole again.
  • +1 And after all this, if you ask someone what the average per annum rate of return was on your investment, the answer will be (-20% + 25%)/2 = +2.5%. Isn't math wonderful? Feb 11 '16 at 16:10

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.