Investment Returns After Inflation

Investment Returns After Inflation

A portfolio can grow in dollars but still lose purchasing power if inflation is high. That’s why it’s useful to look at real return (inflation-adjusted return).

Use the tools:

• Investment Calculator (growth projections)
• Inflation Calculator (purchasing power)

Nominal vs real return

If your investment earns a nominal return $R$ and inflation is $i$, then the real return is:

$$R_{real} = \frac{1 + R}{1 + i} - 1$$

A common approximation (works best for small rates) is:

$$R_{real} \approx R - i$$

Example

If your investment returns 8% and inflation is 3%:

$$R_{real} = \frac{1.08}{1.03} - 1 \approx 4.85\%$$

So the purchasing-power growth is closer to ~4.85%, not 8%.

Practical tips

• Use inflation assumptions (often 2–3% in long-run planning) to stress-test goals.
• Compare multiple scenarios (e.g., 6% vs 8% returns and 2% vs 4% inflation).

Related guides and tools

• Compound Interest Calculator - project nominal growth with contributions
• Inflation Calculator - convert past/future values to today’s dollars