Inflation & buying power
Estimate future prices and how inflation can nibble away at the money you hold.
Economics 101Economics 101
Real return calculator
Did you get richer—or just bigger numbers?
Your numbers
Adjust a nominal return for fees and inflation to estimate a change in buying power.
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THE MATH, WITHOUT THE MYSTERY
What’s actually happening here?
Nominal return is the growth in the number on your statement. Real return measures how your buying power changes after accounting for inflation.
In this model, the asset fee is taken after each year’s growth. We then divide the net growth factor by the inflation factor. Simply subtracting fee and inflation rates is an approximation, not the exact calculation used here.
THE FORMULA
Real annual return = ((1 + nominal return) × (1 − fee) / (1 + inflation) − 1) × 100
A small example
A 5% nominal return with 3% inflation and no fees gives 1.05 ÷ 1.03 − 1 ≈ 1.94% real return, not exactly 2%.
GOOD QUESTIONS
A few things worth knowing.
Can I make money and still lose buying power?
Yes. A positive nominal return can be smaller than the combined effects of fees and inflation.
Why is the fee not just subtracted from the return?
Here it is charged on the post-growth balance. A 1% fee after 7% growth leaves a factor of 1.07 × 0.99 = 1.0593, or 5.93% net growth.