Recovering from left tail events, or extreme portfolio declines, can be challenging because any future gains will be made on a diminished base of assets.
What this chart shows
In the hypothetical example below, an investor whose $10,000 portfolio has lost 30% will need a 43% positive return just to bring the portfolio back to its starting value.
What it means for investors
Because getting back to where you started may take considerable time or require taking on significant risk,investors looking to protect long-term return potential may want to proactively guard their portfolios against left tail market declines and their potentially disastrous outcomes.