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Inflation-Adjusted Return

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Real Rate of Return
The rate of return on an investment after adjusting for inflation. It is calculated simply by taking the gross return and subtracting the inflation rate. For example, if the return on an investment is 7% and the inflation rate is 4%, the real rate of return is 3%.

Inflation-adjusted return. Inflation-adjusted return is what you earn on an investment after accounting for the impact of inflation.

For example, if you earn 7% on a bond during a period when the inflation rate averages 3%, your inflation-adjusted return is 4%.

Inflation-adjusted return is also known as real return.

Since inflation diminishes the buying power of your money, it's important that the rate of return on your overall investment portfolio be greater than the rate of inflation. That way, your money grows rather than shrinks in value over time.



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Using this strategy we find that Zimbabwe's stock market had the greatest nominal return while Kenya's had the lowest return; Botswana's stock market had the best inflation-adjusted return while the stock market of Kenya had the worst return; and Zimbabwe's stock market had the best U.
The average inflation-adjusted return on pension accounts was 8% in 1998, with that return averaging 11% in the first half of this year.
Since the bonds will have a higher inflation-adjusted return than regular bonds or money market funds have earned historically," he notes, "they may be used as a substitute for stocks when the equity market looks expensive.
 
 
 
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