Understand how inflation and taxes affect your actual investment returns.
Real rate of return measures the actual growth of your investment after adjusting for inflation.
Formula:
(1 + Nominal Return) ÷ (1 + Inflation) − 1
This shows how much purchasing power your investment truly gains.
Why is real return important?It reflects true purchasing power growth.
Is real return always lower?Yes, if inflation exists.
Does tax reduce real returns?Yes, taxes further reduce net gains.