Investment Read Time: 1 min

Inflation and the Real Rate of Return

The real rate of return is an important personal finance concept to understand.

It’s the rate of return on your investments after inflation. The real rate of return indicates whether you are gaining or losing purchasing power with your money.

So if inflation checks in at a rate of 6%, does that mean any investment with less than a 6% rate of return is losing purchasing power?

That’s where it gets a little complicated.

In theory, any investment with less than a 6% rate of return may lose purchasing power. But there are other factors you want to consider as well. For example, are inflation rates likely to continue their current trend, or are they transitory effects of broader market changes?

In the end, the real rate of return is only one factor to consider when building a portfolio. Your time horizon, risk tolerance, and goals are the primary drivers.

A financial professional can help you better understand market conditions and build an investment strategy that manages the potential loss of the purchasing power of your money.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

 

Related Content

Test Your Estate Strategy Knowledge

Test Your Estate Strategy Knowledge

Estate management can help ensure that your assets are transferred according to your wishes while managing tax issues.

The Facts About Income Tax

The Facts About Income Tax

Millions faithfully file their 1040 forms each April. But some things about federal income taxes may surprise you.

Understanding Extended Care

Understanding Extended Care

Understanding the types of extended care services—and what those services could cost—may be critical.

 

Have A Question About This Topic?







Thank you! Oops!

Red Flags for Tax Auditors

Here are six flags that may make your tax return prime for an IRS audit.

AI Tools Changing Retiree Entrepreneurship

The impact that Artificial Intelligence (AI) tools can have on retirees with a consulting or small business venture.

Social Media: #NewestBusinessLiabilityRisk

Social media may be a modern imperative for businesses looking to grow and build their brand, but it also introduces risk.

View all articles

Estimate Your RMD

Help determine the required minimum distribution from an IRA or other qualified retirement plan.

Tax Freedom Day

Assess how many days you'll work to pay your federal tax liability.

Federal Income Tax

Use this calculator to estimate your income tax liability along with average and marginal tax rates.

View all calculators

The Rule of 72

Do you know how long it may take for your investments to double in value? The Rule of 72 is a quick way to figure it out.

A Bucket Plan to Go with Your Bucket List

A bucket plan can help you be better prepared for a comfortable retirement.

Jane Bond: Infiltrating the Market

Agent Jane Bond is on the case, cracking the code on bonds.

View all videos