What Is Percent Change and How Do You Calculate It?

What is percent change?

Percent change is a simple concept that measures the increase or decrease in a value or quantity over time. It is expressed as a percentage of the original value. For example, if the price of a stock increases from $40 to $50, the value increases by 25%. Similarly, if the price of a stock falls from $50 to $40, it drops 20%.

The benefits of tracking percent change

How can you use percent changes to make better investment decisions? Here are a few tips:

• Look beyond the dollar value: When evaluating investments, don't just focus on the dollar value change. Consider the percent change as well to get a more accurate picture of the investment's performance.
• Track percent change over time: By tracking the percent change of your investments over time, you can gain a better understanding of their volatility and risk.
• Use percent change to compare investments: When evaluating multiple investments, use percent change as a standardized way of comparing them, regardless of their relative size and different share counts.

Keep an eye on the overall market: The percent change of individual stocks is affected by the overall performance of the market. By monitoring the percent change of major indices, such as the S&P 500 (^GSPC +0.01%) or Dow Jones Industrial Average (^DJI +0.55%), you can gain a better understanding of the direction of the market and make more informed investment decisions.

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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.