When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
How to calculate the percentage gain or loss from an investment
Do you ever wonder how seasoned investors work out their percentage of gain or loss?
There is, in fact, an exact way to measure your investment income - and track your investing progress.
There is, in fact, an exact way to measure your investment income - and track your investing progress.
QUOTE
"In investing, what is comfortable is rarely profitable."
Big ideas
- Calculating percentage gains and losses reveals the ultimate insight into a stock's true performance, as well as volatility.
- The context, whether short-term trading or long-term investing, critically influences the application of stock return calculations.
- Taxes and brokerage fees play a crucial role in determining the actual net outcome of investment returns.
Why use the percentage gain or loss of an investment?
It’s not how much you’ve earned or lost in absolute terms but the efficiency and effectiveness of your investment choices that are important.
If you can understand and apply this concept, it will help you view the performance of your stocks, ETFs, or other financial instruments from a different angle.
If you can understand and apply this concept, it will help you view the performance of your stocks, ETFs, or other financial instruments from a different angle.
Definition
Percentage gain or loss tells you how much your investment has grown or shrunk relative to its original value.
An appreciation for percentage gains and losses also have big implications for risk management.
Percentage return required to fully recover from a loss
The chart above illustrates the disproportionately larger gains required to recover from increasing levels of loss.
For instance, a 10% loss only requires an 11% gain to break even, whereas a 50% loss requires a 100% gain to return to the original investment level.
As losses deepen, the required gains to recover escalate dramatically, exemplified by a 90% loss necessitating a staggering 900% gain to make up for the loss. This emphasises the importance of mitigating losses and understanding the challenges in recovering from significant downturns in investment values.
For instance, a 10% loss only requires an 11% gain to break even, whereas a 50% loss requires a 100% gain to return to the original investment level.
As losses deepen, the required gains to recover escalate dramatically, exemplified by a 90% loss necessitating a staggering 900% gain to make up for the loss. This emphasises the importance of mitigating losses and understanding the challenges in recovering from significant downturns in investment values.
What is the relevance of percentage gain or loss to investors?
First of all, it gives context to your investment performance. While seeing a stock price rise from £100 to £120 may appear fairly straightforward, knowing that this reflects a 20% rise puts things into clearer perspective. It is about measuring the success of one’s investment strategy relative to others and not just looking at numbers in isolation.
Knowing the percentage return is vital for comparing different investments.
A £20 gain on a £100 investment is a 20% increase
The same £20 gain on a £200 investment is just a 10% increase.
This comparison should always be made when evaluating different investment opportunities, especially in diversified portfolios.
The same £20 gain on a £200 investment is just a 10% increase.
This comparison should always be made when evaluating different investment opportunities, especially in diversified portfolios.
Additionally, knowing percentages can help with long-term financial planning. You’ll know if you are meeting your goals; whether it’s retirement, buying a house, etc., these calculations will help map out your financial journey.
Finally, being knowledgeable about the calculation of investment gains and losses is a step in the right direction towards becoming an informed investor.
It is not just by following market trends or listening to expert predictions but by developing your ability to independently evaluate and understand your financial situation. By doing so, you will be confident and take risk-calculated approaches, which are some characteristics of a seasoned investor.
Finally, being knowledgeable about the calculation of investment gains and losses is a step in the right direction towards becoming an informed investor.
It is not just by following market trends or listening to expert predictions but by developing your ability to independently evaluate and understand your financial situation. By doing so, you will be confident and take risk-calculated approaches, which are some characteristics of a seasoned investor.
How to calculate percentage gain?
Calculating the percentage gain of an investment is a fundamental skill for any investor. It allows you to quantify the performance of your investments in a standardised way, making it easier to compare different assets regardless of their initial values.
Formula
Percentage Gain = [(Current Price - Original Price) / Original Price] x 100
Imagine you purchased shares of a company at £50 per share, and now they are worth £65 per share.
The calculation would be:
The calculation would be:
Example of stock price increase:
[(65 - 50) / 50] x 100 = (15 / 50) x 100 = 0.30 x 100 = 30% gain on your investment
Now for our second example, suppose you invested in an ETF at £200, and its current value is £240, using the formula:
Example of an ETF price increase:
[(240 - 200) / 200] x 100 = (40 / 200) x 100 = 0.20 x 100 = 20% gain on your investment
What these examples show is how simple and useful the percentage gain calculation is.
Be it a substantial rise in individual stocks or a minor increase in an ETF, you are equipped to know how much you have gained by employing this formula. It should be noted that monitoring these percentages is essential when reflecting on whether or not one should buy, keep, or dispose of securities.
Next, we will look at calculating the percentage loss, which is equally as critical when managing your investment portfolio effectively.
Be it a substantial rise in individual stocks or a minor increase in an ETF, you are equipped to know how much you have gained by employing this formula. It should be noted that monitoring these percentages is essential when reflecting on whether or not one should buy, keep, or dispose of securities.
Next, we will look at calculating the percentage loss, which is equally as critical when managing your investment portfolio effectively.
How to calculate percentage loss?
Not only should you understand the gains in your investments, but it is also important to calculate percentage loss so that you can have a comprehensive view of your investment health. This is useful for assessing how market downturns or underperforming assets affect your portfolio.
Percentage loss formula
Percentage Loss = [(Original Price - Current Price) / Original Price) x 100
This formula indicates the extent to which an investment has decreased in value as a percentage of its original price.
Examples
You bought a stock at £80 per share, and its current market price is now down at £60. The percentage loss is calculated as follows…
Example 1:
[(80 - 60) / 80)] x 100 = (20 / 80) x 100 = 0.25 x 100 = 25% loss
Now consider an investment in a commodity that was initially worth £150, but its value has now fallen to £120. The percentage loss would be…
Example 2:
[(150 - 120) / 150)] x 100 = (30 / 150) x 100 = 0.20 x 100 = 20% loss
These examples show why you should focus on both the profits and the losses in your portfolio.
A percentage decline helps determine how bad a slump is, therefore enabling you to determine whether to hold on to or sell off an investment. That’s why it is a must-have instrument for risk management purposes when securing your assets from adverse implications of market instability.
A percentage decline helps determine how bad a slump is, therefore enabling you to determine whether to hold on to or sell off an investment. That’s why it is a must-have instrument for risk management purposes when securing your assets from adverse implications of market instability.
What factors impact percentage gain or loss?
It is important to recognise that other factors may also play a role in determining the actual performance of your investment despite the fact that basic formulas for calculating the percentage gain and loss are simple.
Below is a list of things you will need to consider as an investor if you are looking to really understand your portfolio's performance.
Below is a list of things you will need to consider as an investor if you are looking to really understand your portfolio's performance.
# | Consideration | Purpose |
1 | Include dividends or interest | To accurately assess total returns for stocks and bonds |
2 | Deduct brokerage fees and transaction costs | To measure true net performance |
3 | Consider the impact of capital gains tax | To calculate the actual return on investment |
4 | Account for inflation | To understand the real purchasing power of your investment returns |
5 | Factor in currency exchange rates | To assess the true performance of foreign investments |
6 | Understand the compounding effect | To grasp the overall growth of long-term investments |
7 | Acknowledge market volatility | To understand how values change over fixed time periods relative |
Again, it’s not just about the increase or decrease in value - it’s understanding all of these multiple factors that make up a well-rounded investment evaluation.
Recap
Calculating the percentage gain/loss will tell you how good or bad one investment is compared to another.
By keeping track of the percentage performance of different investments, you’ll be able to make smarter decisions about your investing portfolio and plan for future investments that’ll get you closer to your goals.
By keeping track of the percentage performance of different investments, you’ll be able to make smarter decisions about your investing portfolio and plan for future investments that’ll get you closer to your goals.
FAQ
Q: How to calculate percent of return?
Subtract the original value from the current value and divide this difference by the original value. Then multiply everything by 100.
This gives you the percentage increase or decrease in the value over time.
This gives you the percentage increase or decrease in the value over time.
Q: What is a fair percentage gain for an investor?
A fair percentage gain depends on your personal goals, market conditions and risk tolerance. But generally speaking, something that outperforms relevant benchmarks or inflation can be viewed as “fair”. Although what people think is "fair” varies when comparing investment types and time horizons.
