# Inflation-Adjusted Return

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## Definition of 'Inflation-Adjusted Return'

Inflation-adjusted return is a measure of investment performance that takes into account the effects of inflation. It is calculated by subtracting the inflation rate from the nominal return of an investment.

The nominal return is the actual return on an investment, before inflation is taken into account. The inflation rate is the rate at which prices are rising, and it is typically measured by the consumer price index (CPI).

To calculate the inflation-adjusted return, you first need to find the nominal return of your investment. This can be done by using the following formula:

Nominal Return = (Ending Value - Beginning Value) / Beginning Value

Once you have the nominal return, you need to find the inflation rate. This can be done by using the following formula:

Inflation Rate = (CPI at End of Period - CPI at Beginning of Period) / CPI at Beginning of Period

Finally, you can calculate the inflation-adjusted return by subtracting the inflation rate from the nominal return.

Inflation-adjusted return is a useful measure of investment performance because it takes into account the effects of inflation. This is important because inflation can erode the value of your investments over time. By using inflation-adjusted return, you can compare the performance of different investments on a level playing field.

Here are some examples of how inflation-adjusted return can be used:

* You are considering investing in a stock that has a nominal return of 10%. However, the inflation rate is expected to be 5%. The inflation-adjusted return on this investment would be 5%.

* You are comparing two different mutual funds. One fund has a nominal return of 8%, while the other fund has a nominal return of 10%. However, the inflation rate is expected to be 3%. The inflation-adjusted return on the first fund would be 5%, while the inflation-adjusted return on the second fund would be 7%.

Inflation-adjusted return is a valuable tool for investors. It can help you compare the performance of different investments and make informed investment decisions.

The nominal return is the actual return on an investment, before inflation is taken into account. The inflation rate is the rate at which prices are rising, and it is typically measured by the consumer price index (CPI).

To calculate the inflation-adjusted return, you first need to find the nominal return of your investment. This can be done by using the following formula:

Nominal Return = (Ending Value - Beginning Value) / Beginning Value

Once you have the nominal return, you need to find the inflation rate. This can be done by using the following formula:

Inflation Rate = (CPI at End of Period - CPI at Beginning of Period) / CPI at Beginning of Period

Finally, you can calculate the inflation-adjusted return by subtracting the inflation rate from the nominal return.

Inflation-adjusted return is a useful measure of investment performance because it takes into account the effects of inflation. This is important because inflation can erode the value of your investments over time. By using inflation-adjusted return, you can compare the performance of different investments on a level playing field.

Here are some examples of how inflation-adjusted return can be used:

* You are considering investing in a stock that has a nominal return of 10%. However, the inflation rate is expected to be 5%. The inflation-adjusted return on this investment would be 5%.

* You are comparing two different mutual funds. One fund has a nominal return of 8%, while the other fund has a nominal return of 10%. However, the inflation rate is expected to be 3%. The inflation-adjusted return on the first fund would be 5%, while the inflation-adjusted return on the second fund would be 7%.

Inflation-adjusted return is a valuable tool for investors. It can help you compare the performance of different investments and make informed investment decisions.

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Copyright © 2004-2023, MyPivots. All rights reserved.