1. What is Inflation-Adjusted Return?

The inflation-adjusted return (or real return) measures the return on an investment after accounting for inflation. It shows the true increase in purchasing power from an investment, rather than just the nominal dollar amount.

2. How Does the Calculator Work?

The calculator uses the inflation-adjusted return formula:

Where:

• Nominal Return — The stated return on an investment (percentage)
• Inflation Rate — The rate of inflation over the same period (percentage)

Explanation: The formula adjusts the nominal return by the inflation rate to determine the real purchasing power gained or lost.

3. Importance of Inflation Adjustment

Details: Inflation erodes purchasing power over time. A 5% nominal return with 3% inflation means only a 2% real increase in purchasing power. This adjustment is crucial for long-term financial planning.

4. Using the Calculator

Tips: Enter both the nominal return and inflation rate as percentages (e.g., enter "5" for 5%). Both values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: Why calculate inflation-adjusted returns?
A: It shows the true growth of your purchasing power, helping you understand if your investments are actually making you wealthier in real terms.

Q2: What's a good inflation-adjusted return?
A: Historically, stocks have returned about 6-7% after inflation. Positive real returns mean your money is growing faster than prices are rising.

Q3: Can inflation-adjusted returns be negative?
A: Yes, if inflation is higher than your nominal return, your real return is negative - meaning you've lost purchasing power.

Q4: Should I use average or specific inflation rates?
A: For accuracy, match the inflation rate to your specific investment period. Historical averages can be used for projections.

Q5: How does this differ from simple subtraction?
A: The formula accounts for compounding effects. Simple subtraction (nominal - inflation) is less accurate, especially with higher rates.