Importance of Princpal Preservation

In a recent seminar, I was reminded of the importance of protecting our principal against losses. The table below show the amount of gain needed to recover a loss.

Importance of Principal Preservation
Decline	Gain to Break Even
-10%	11%
-30%	43%
-50%	100%
-70%	233%

So a 10% loss only requires an 11% gain to break even, which is doable.  However, as losses grow, the gain needed to break even grow even faster.  For example a 30% loss requires a 43% gain to recover the loss.   When there is a 50% loss, a 100% gain is needed, which is extremely difficult to do.

That's why it's important to minimize losses.  Big declines require prohibitively large gains to recover what was lost.

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This is not financial advice. Please consult a professional advisor.

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