How to Calculate the Percentage of Annual Decline

by Mark Kennan, studioD

With most investments, you take on some level of risk in exchange for the possibility of a higher return. Sometimes, investments do not work out and you lose money. Calculating the percentage of annual decline for an investment allows you to contrast the performance of different investments. By figuring the annual rate rather than the overall rate of decline, you calculate a metric that can be used for investments of different time periods.

Divide the ending value of your investment by the beginning value of your investment. For example, if in six months a stock you purchased dropped from $28 to $24, divide $24 by $28 to get 0.857142857.

Divide 1 by the number of years over which the decline took place. In this example, since you held the investment for half a year, divide 1 by 0.5 to get 2.

Raise the ratio of the ending to beginning price from Step 1 to the power of the Step 2 answer. "Raise" means to use exponents. On the calculator, enter the ratio, press the exponent key (usually "^" or "x^y"), enter the power and press "Enter" and the calculator displays the result. In this example, raise 0.857142857 to the 2nd power to get 0.734693878.

Subtract 1 from the result to find the annual rate of decline. In this example, subtract 1 from 0.734693878 to get an annual rate of -0.265306122, meaning the value is declining.

Multiply the rate of annual decline by 100 to find the percentage of annual decline. In this example, multiply 0.265306122 by 100 to find the annual decline percentage equals approximately 26.53 percent.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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