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Cumulative return

The total percentage change over the whole period, which flatters long records and hides everything about how the money was made.

Cumulative return is ending value divided by starting value, minus one. A 214% cumulative return sounds impressive until you learn it took eleven years, which is 10.9% annualised - a little under a passive index over the same stretch.

Two figures must accompany it to be meaningful: the period length, so it can be converted to annualised-return, and the worst drawdown along the way, so the path is visible. A 214% cumulative return with a 12% maximum drawdown and the same return with a 70% drawdown are entirely different products, and the cumulative number cannot tell them apart.

Be especially wary of cumulative figures on charts with a log scale omitted and deposits included. Adding capital raises the ending balance without earning a thing - see deposit-adjusted-return.

Related: annualised-return, deposit-adjusted-return, max-drawdown, equity-curve

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Educational only, not advice. Spotted an error? Post in Site Feedback.