Calculate the real return
Divide the investment’s growth factor by the inflation factor to calculate the return in purchasing-power terms. Subtracting inflation from the nominal return is only an approximation.
Today’s buying power = future nominal value ÷ (1 + inflation)^years
Use decimal rates in the formulas. A 7% nominal return and 3% inflation give approximately 3.88% real annual growth, rather than exactly 4%.
A worked purchasing-power example
Start with $10,000, assume a 7% annual nominal return and 3% annual inflation for ten years. The nominal ending value is $19,671.51. Dividing by the compounded inflation factor gives $14,637.45 in today’s buying power.
The two values describe the same hypothetical future balance in different purchasing-power terms.
Inflation is an assumption here
Choose the inflation rate you want to explore. The tool does not fetch or predict an inflation series, and your personal spending mix may differ from a broad price index.
The U.S. Bureau of Labor Statistics explains converting nominal amounts into constant dollars using a price index. This calculator illustrates the same purchasing-power adjustment using a constant annual rate that you select.
Frequently asked questions
Can a positive nominal return lose buying power?
Yes. If the modeled inflation rate exceeds the nominal return, the real return is negative even though the nominal balance increases.
Can I model deflation?
Yes. A negative inflation assumption represents falling prices. The tool accepts inflation from −20% to 50% per year for hypothetical scenarios.
Does changing currency change the inflation assumption?
No. USD, EUR, and GBP change number formatting only. Choose a relevant inflation assumption yourself; the tool does not convert currencies or load country data.
Published by investor.wtf. Read the formulas, assumptions, and how these pages are made.