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

Inflation and Your Portfolio

Inflation and Your Portfolio

Even low inflation rates can pose a threat to investment returns.

Dog Bites Neighbor. Now What?

Dog Bites Neighbor. Now What?

Even dogs have bad days. So, what happens when your dog bites a neighbor or passing pedestrian?

The Cost of Procrastination

The Cost of Procrastination

Don't let procrastination keep you from pursuing your financial dreams and goals.

 

Have A Question About This Topic?







Thank you! Oops!

Keep Your Umbrella Handy

Umbrella liability can be a fairly inexpensive way to help shelter current assets and future income from the unexpected.

Mortgages in Retirement

Explore the benefits and drawbacks to paying off your mortgage prior to retirement with this article.

Critical Estate Documents

Sound estate management includes creating financial and healthcare documents. Here's an inside look.

View all articles

Potential Income from an IRA

Estimate your monthly and annual income from various IRA types.

Capital Gains Tax Estimator

Use this calculator to estimate your capital gains tax.

Self-Employed Retirement Plans

Estimate the maximum contribution amount for a Self-Employed 401(k), SIMPLE IRA, or SEP.

View all calculators

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

5 Smart Investing Strategies

There are some smart strategies that may help you pursue your investment objectives

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

View all presentations

RE: Retirement

How does your ideal retirement differ from reality, and what can we do to better align the two?

When Do You Need a Will?

When do you need a will? The answer is easy: Right Now.

Saving for College 101

Here’s a crash course on saving for college.

View all videos