How it Works
The Fisher Equation is used:
$ 1 + Real = \frac{1 + Nominal}{1 + Inflation} $
Simplified: Real Rate ≈ Nominal Rate - Inflation Rate.
What is Inflation-Adjusted Return Calculator?
The Real Rate of Return Calculator adjusts nominal investment gains for the effects of inflation. While your account balance may grow, inflation erodes the purchasing power of that money. The real rate reveals exactly how much your wealth is actually increasing.
Step-by-Step Guide
- 1 Nominal Rate
- Your investment return %.
- 2 Inflation Rate
- Expected annual inflation %.
- 3 Calculate
- Apply Fisher Equation.
Example
Input: 8% Nominal, 3% Inflation
Result: 4.85% Real Return
FAQ
Why use Fisher Equation?
Simple subtraction (8-3=5) is inaccurate for compound periods; Fisher is mathematically precise.
Average inflation?
Historically ~3% in the US.
Nominal vs Real?
Nominal is the number on the screen; Real is what you can buy.
Does tax apply?
Taxes apply to Nominal gains, further reducing Real return.
Negative real return?
Happens when inflation > interest (e.g., savings accounts).
⚠️ Note: This tool provides financial estimates. It is not a substitute for professional advice. Always verify with a certified accountant or advisor.
Conclusion
This is the only metric that matters for long-term wealth preservation. A 5% return in a year with 5% inflation means you gained zero purchasing power.