1. What is Monthly Real Return?

The Monthly Real Return measures the inflation-adjusted return on an investment. It shows the true increase in purchasing power by accounting for the eroding effects of inflation.

2. How Does the Calculator Work?

The calculator uses the real return formula:

Where:

• \( \text{Nominal Monthly} \) — Monthly nominal return (decimal)
• \( \text{Monthly Inflation} \) — Monthly inflation rate (decimal)

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

3. Importance of Real Return Calculation

Details: Real returns are crucial for understanding true investment performance, comparing investments across time periods, and making informed financial decisions.

4. Using the Calculator

Tips: Enter nominal monthly return and monthly inflation rate as decimals (e.g., 0.05 for 5%). Both values must be between -1 and 1, and inflation cannot be exactly -1.

5. Frequently Asked Questions (FAQ)

Q1: Why calculate real returns instead of just using nominal returns?
A: Nominal returns don't account for inflation, which can give a false impression of actual purchasing power gained.

Q2: What's a good real rate of return?
A: This depends on individual goals and risk tolerance, but historically, real returns of 3-5% are considered good for diversified portfolios.

Q3: Can the real return be negative?
A: Yes, if inflation is higher than the nominal return, the real return will be negative, meaning purchasing power has decreased.

Q4: How often should I calculate real returns?
A: For active investors, monthly calculation provides timely insights. Long-term investors might calculate annually.

Q5: Where can I find monthly inflation data?
A: Government statistics agencies typically publish monthly inflation figures, such as the Consumer Price Index (CPI).