When Will You Recover Your Market Losses?
Wow what a ride! The stock market as represented by the S&P 500 dropped 57% from its high in 2007 to its low in 2009. It has rebounded 40% to date from this low. What does this mean to your retirement portfolio? Does this mean that you have almost earned back all the money that you lost in the market? Probably not, as the following numbers will demonstrate.

Nearly every portfolio that holds stocks is down significantly since late 2007, with declines of 40% not uncommon. What exactly will it take to make up those losses? Most people underestimate the gains needed to recover from these loses.

Suppose that you had a stock that falls 50% in value. How much does that stock have to gain before you are back where you started? Many people will respond with 50%, but that would be incorrect. If the stocks price starts at $10 and loses 50%, the new value is $5. A 50% gain will put you back to only $7.50. To get back to $10, the stock would have to gain 100%, twice as much as it lost in percentage terms.