1. What is Real Rate of Return?

The real rate of return adjusts the nominal return for the effects of inflation, showing the true increase in purchasing power of an investment.

2. How Does the Calculator Work?

The calculator uses the real return formula:

Where:

• Nominal — Nominal return (percentage)
• Inflation — Inflation rate (percentage)

Explanation: The formula accounts for the erosion of purchasing power due to inflation, showing the actual growth of your investment in terms of what it can buy.

3. Importance of Real Return Calculation

Details: Understanding real returns is crucial for investment planning as it shows whether your investments are actually growing your wealth after accounting for inflation.

4. Using the Calculator

Tips: Enter nominal return and inflation rate as percentages. Both values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between nominal and real return?
A: Nominal return doesn't account for inflation, while real return shows your actual purchasing power increase.

Q2: Can real return be negative?
A: Yes, if inflation is higher than your nominal return, your real return will be negative.

Q3: Why is real return important for retirement planning?
A: It shows whether your savings will actually maintain their purchasing power during retirement.

Q4: How often should I calculate real returns?
A: At least annually, to understand if your investments are keeping pace with inflation.

Q5: Does this work for all types of investments?
A: Yes, the real return calculation applies to any investment when you know the nominal return and inflation rate.