What is the Real Rate of Return?
How Does the Real Rate of Return Work?
Let's say John Doe savings account that offers a 2.5% interest rate (this is called the nominal rate). This sounds like a nice deal, until you consider the 3% rate and the 28% tax John must pay on the interest. Acccordingly, John's real rate of return is negative (2.5% - 3% loss for inflation – 28% tax on interest ).a
Why Does the Real Rate of Return Matter?
It is critical to consider the real rate of return on an investment is appropriate given the real rate of return.before . , which is often 2% or 3% per , reduces the value of as time passes, and certainly take a chunk away too. What's left -- the real rate of return -- often can be unimpressive after considering these adjustments. Accordingly, investors must consider whether the risk associated with the