Home/Investment/Inflation Adjusted Return

Inflation Adjusted Return

Protect your wealth by calculating the true purchasing power of your investment gains after accounting for inflation.

Real Rate of Return

6.67%

This is your true growth after inflation

Nominal Value$11,200
Real Value (Adjusted)$10,667
Purchasing Power Loss$533

Why Real Return Matters?

If your bank offers a 5% interest rate but inflation is also at 5%, your nominal return is 5%, but your real return is 0%. This means while you have more money, you can only buy the same amount of goods as before. Always aim for investments where the nominal return significantly exceeds the inflation rate.

This tool is useful for Long-Term Investors, Pensioners, and Macroeconomists (and for everyone else who wants to see the "Real" value of their returns after accounting for the rising cost of living).

Related Calculators

SWP Calculator

Strategize your retirement income with precision. Determine how long your capital will last based on withdrawal rates and returns.

RD Calculator

Plan your monthly savings goals effortlessly. See how consistent contributions grow into a significant corpus over time.

Brokerage Calculator

The trader's essential tool. Calculate STT, GST, and SEBI fees to know your exact break-even cost per trade.

Lumpsum Calculator

Analyze how your one-time investment grows over time with compounding. Perfect for long-term wealth planning and windfall management.

Nominal vs. Real Returns: The Inflation Factor

The "Nominal Return" is the percentage gain you see on your account statement. However, the "Real Return" is what actually matters for your wealth. Inflation erodes the purchasing power of your money over time, meaning a 5% gain in a year with 4% inflation actually only increases your wealth by roughly 1%.

The Bureau of Labor Statistics (BLS) tracks the Consumer Price Index (CPI), which is the primary measure of inflation used to calculate real returns.

The Fisher Equation

The relationship between nominal interest rates, inflation, and real interest rates is described by the Fisher Equation:

Real Return = [(1 + Nominal Rate) / (1 + Inflation Rate)] - 1

Why This Calculator is Essential

During periods of high inflation, as monitored by the Federal Reserve, "safe" investments like savings accounts or bonds may actually yield a negative real return. This means that even though your balance is increasing, you can buy fewer goods and services with that money than you could a year ago.

Strategic Implications

  • Protective Assets: Investors often turn to "Inflation Hedges" like Real Estate, Commodities, or TIPS (Treasury Inflation-Protected Securities) when they expect inflation to rise.
  • Retirement Planning: If you assume a 7% return for retirement planning, you must subtract the expected inflation rate (historically ~2-3%) to get a realistic view of your future purchasing power.
  • Wage Negotiations: If your annual raise is less than the inflation rate, you have effectively received a pay cut in real terms.

The "Silent Thief"

Inflation is often called the silent thief of wealth. Over 20 years, even a modest 3% inflation rate will reduce the value of $100 to about $55. Our calculator helps you visualize this impact so you can adjust your investment strategy to stay ahead of the curve.

Related Performance Tools