Formula:
The formula to calculate the Inflation Adjusted Return (or Real Return) is:
Real Return = ((1 + Nominal Return) / (1 + Inflation Rate)) - 1
- Nominal Return: Your investment's stated return before considering inflation (e.g., 8% from a stock portfolio).
- Inflation Rate: The rate at which the purchasing power of a currency declines over a given period (e.g., 3% annual inflation).
- Real Return: Your actual return after accounting for inflation, representing your true gain or loss in purchasing power.
All rates should be expressed as decimals in the formula (e.g., 8% becomes 0.08).