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 market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. No investment strategy can guarantee a profit or protect against loss.
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 2022 FMG Suite.