Risk of Ruin Calculator

This online tool is able to calculate the risk of ruin, which is also referred to as a drawdown calculation.  The calculator takes into consideration the funds placed at risk, the dollars per transaction, the investor's threshold for ruin, as well as their probability of a positive outcome.

         
         
  Risk of Ruin Calculator      
  Total Funds at Risk ($)    
  Threshold for Ruin ($)    
  Funds at Risk per Transaction ($)    
  The Probability of a Win (%)    
         
         
         
  The Probability of a Loss (%)    
  Transactions Until Ruin    
         
  Risk of Ruin (%)    
         

Calculator Definitions

The variables used in our online calculator are defined in detail below, including how to interpret the results.

Total Funds at Risk ($)

This is the total dollars the investor is willing to place at risk, which may be a dedicated portfolio of securities.

Funds at Risk per Transaction ($)

This is the dollars placed at risk during each transaction.  For example, if the investor is able to lose $2,000 per transaction, then that is the value to enter in this cell.

Threshold for Ruin ($)

The threshold for ruin is the value at which the investor would consider the portfolio lost.  For example, the investor might have $100,000 in the portfolio and is willing to lose up to $40,000 (drawdown) before the portfolio is considered failed.  In this example, the Threshold for Ruin is $60,000.

The Probability of a Win (%) / The Probability of a Loss (%)

This value represents the likelihood of a good outcome for each transaction. If a trader is successful 52% of the time when conducting a transaction, then the probability of a win is 52%.  Conversely, the probability of a loss would be 100% - 52%, or 48%.

Risk of Ruin (%)

Given the variables entered into this calculator, this is the likelihood the portfolio would reach a state of ruin.  For example, if the Total Funds at Risk were $100,000, the Funds at Risk per Transaction were $2,000, and the Probability of a Win is 52%, the investor has a 20% chance the portfolio would be considered ruined.


Risk of Ruin Calculator - Money-Zine.com (Last Reviewed on April 20, 2016)


Disclaimer: These calculators are made available and meant to be used as a screening tool for the investor.  The accuracy of these calculator results is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.