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Real return after inflation

Is your money really growing, or just the number?

The formulaRoughly: real return ≈ return − inflationExactly: real return = (1 + return) ÷ (1 + inflation) − 1

Example 1: an investment earning 6% with 2% inflation

Roughly6% − 2% = 4%

Exactly1.06 ÷ 1.02 − 1

Real return= 3.92%

Example 2: savings paying 1% with 3% inflation

Roughly1% − 3% = −2%

Exactly1.01 ÷ 1.03 − 1

Real return= −1.94%

The balance goes up, but it buys less each year.

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All content on this site is for educational purposes only and is not investment advice or a recommendation. Past performance does not guarantee future results. Consult a licensed adviser before making any investment decision.