Gain or Loss?

As I posted earlier, my friend and I attended a seminar sponsored by BDO.
Here’s one thing that’s a new learning for me. The speaker showed the performance of one investment product. Sorry, I don’t remember which one and I don’t remember the exact figures as well. But for instance, we have these percentages of the investment product’s performance per anum:
  • Year 1 – 52%
  • Year 2 – (48%)
  • Year 3 – 63%
  • Year 4 – 37%
The question thrown to us was: did I regain my loss in Year 3 after its negative return in Year 2 and very high return in Year 3? The answer is NO. Here’s to illustrate:

Based on our example, our starting Principal for Year 2 was 15,200.00 but by year end, it dropped to 7,904.00. And although Year 3 yielded high return, the principal of Year 2 has not yet been recovered by end of Year 3. It was only on Year 4 that it was greater than Year 2’s principal.
Why a lesson learned for me? Because if I were to look only at the rates, it is always my impression that you recovered your loss by Year 3 because of the big jump in interest. However, the figures don’t show it. In some instances, perhaps it may, but not always.

**Disclaimer: I’m not Financial savvy. I’m just sharing what I learned from the seminar. I hope to at least become financially literate though :). **

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