Risk, diversification & the maths of losses
A 50% loss needs a 100% gain just to break even.
Explorer · 9 min · Updated 2026-11-08
💡 Don't carry all your eggs up the stairs in one basket
If you trip with one basket, every egg breaks. With three baskets, a trip costs you one basket, not breakfast. Diversification is not about getting more eggs — it is about making sure one stumble cannot end the game.
Losses and gains are not symmetric
If an investment falls by L%, the gain needed to recover is L ÷ (100 − L). The table shows why big drawdowns are so dangerous:
| Loss | Gain needed to recover |
|---|---|
| −10% | +11% |
| −25% | +33% |
| −50% | +100% |
| −60% | +150% |
| −80% | +400% |
| −90% | +900% |
Crypto assets have repeatedly fallen 70–90% from their peaks; many smaller tokens never recovered at all.
Volatility drag
Two portfolios can have the same average return and end in very different places. +50% then −50% leaves you at 75% of where you started, not 100%. The more something swings, the more this "drag" eats compounding.
Diversification — and its limits in crypto
Holding assets that don't move together reduces the chance that one event wipes you out. But in crypto sell-offs, most coins tend to fall together (high correlation). Holding 20 altcoins is often closer to one big bet than to real diversification. Real diversification usually means mixing different kinds of assets and keeping cash reserves.
Three survival rules
- Size by what you can lose: only put in money whose total loss would not change your life.
- Cap single positions: no single high-risk holding should be able to sink your plan.
- Avoid leverage until you truly understand it: leverage turns drawdowns into liquidations.
🧮 Practical example: $10,000 and a bad year
Key takeaways
- Recovery gain = L ÷ (100 − L).
- Volatility drag reduces compounded returns.
- Crypto coins often move together.
- Position size is your first and best risk control.
Education only — not financial advice.