Navigating the percentage changes in 2020
Let's look at a real-world example of percent change in action. In 2020, the stock market experienced a significant downturn due to the COVID-19 pandemic. The S&P 500 index fell by 34% between the start of the drop on February 19 and the rock-bottom reading of March 23.
Although this may seem like a significant plunge, it was also a quick crash and it’s important to consider the percent change over the longer term. From March 23 to Dec. 31, 2020, the S&P 500 index increased by 68% as investors looked past the health crisis with effective vaccines on the horizon. All told, the S&P 500 gained 16% in 2020.
By looking at the percent change over the entire year, investors can see that the market actually recovered from the pandemic-induced downturn and ended up posting impressive gains. A short-term decrease in value may be concerning, but if the investment has a history of positive long-term performance, it may still be a sound investment. Keeping an eye on percentage changes in light of market-moving news can help you buy the dip or stay on the sidelines, as appropriate.
If you get used to looking at percent changes instead of dollar changes, and to put these price moves into the context of longer periods and the overall market’s returns in the same time spans, you’ll find it easier to monitor and evaluate your investments.