Main Street and Wall Street. Most of the times they are linked together by people’s 401K and similar plans, and in the past 12 months, the stock market, measured by the DJIA, S&P 500 or NASDAQ have lost about 35% of their value**, not an easy pill to swallow. Therefore, if you had $1,000 in your account a year ago, you are now left with $650.
What will it take for your account to return to it’s original value? The answer is NOT 35%.
For your account to return to the $1,000 it would be the same as someone investing today $650 and bring that account to $1,000, or a gain of $350. Therefore since 350/650=0.54, the stock market will have to go up by 54% before you can see your portfolio return to its glory days of one year ago.
It’s quite interesting how math works when the market goes down vs. when the market goes up.
** As of this writing, October 9, 2008 prior to market opening, using closing values of October 8, 2008.