When you look at your investments, you want to know not only whether you're making or losing money on your assets, but also how well you're doing compared to other financial opportunities. In many cases, you'll do this by comparing the percent gain or loss of each opportunity. You can easily calculate a percent loss on an investment or compare the net loss on an opportunity choice with a few, simple calculations.
Read More: How to Calculate Cumulative Investment Percentage
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Why Calculate Percentages vs. Grosses?
Knowing the dollar amount of a loss doesn't help you compare what you might have made or lost with another investment if the other investment requires you to put up a different amount.
This is why many investors want to know their percentage return – so they can make a better apples-to-apples comparison against other investment options. Knowing percentages helps you determine your return on your investment.
Read More: How to Measure Stock Performance
Making the Calculation
To calculate a dollar loss as a percentage, start with your beginning balance or investment worth. For example, you might have purchased $5,000 worth of stock, or your stock might have been worth $5,000 at the beginning of the year.
Next, subtract your current loss from your beginning balance. If your stock is now worth $4,000, you've lost $1,000. Once you have your net loss, divide it by your beginning balance to get your percent balance. In this case, divide $1,000 by $5,000 to get 0.2. Add a zero to this or multiply by 100 and you'll find you've lost 20 percent of your investment value.
If you have your computer or phone handy, you can use a percentage calculator to do the math for you.
Read More: How to Evaluate Financial Performance
Using Your Percent Loss Figure
If you have a variety of stocks in a portfolio and the stock market has had a bad year, you can compare your percentage loss to a market index (such as the Dow Jones), a mutual fund or other investments options you might have chosen. You might find that your portfolio's percentage loss was not as bad as other investment opportunities you might have selected.
Reconsider Your Percent Gain Figures
You don't always come out ahead when your investments increase in value. Let's say you have a small investment that increased by 7 percent this year. Depending on what you do with your capital gain, you might have to pay taxes on that net increase, decreasing your gain. Let's say that after all taxes and fees, you still make a 7 percent increase on a $5,000 investment. That's $350.
If you are carrying $5,000 in credit card debt at 15 percent interest for a one-year period, you'll pay $750 in interest. You'd be better off using your $5,000 to pay off your 15 percent debt than you would investing it and earning a 7 percent return. If you have $3,000 in credit card debt at 15 percent, you will pay $450 in interest. You can leave $2,000 in the market and pay down $3,000 worth of debt.
If you are putting $5,000 into a 401(k), it might be better to continue to do that even if your annual return is less than what you'd net if you paid down credit card debt. This is because your 401(k) amount will continue to earn compound interest for decades, far outperforming your one-time debt reduction. Having a tax-advantaged retirement contribution deducted from your paycheck also decreases your payroll taxes and lets you keep more of your money.