Inflation-adjusted return is what you earn on an investment after accounting for the impact of inflation.
For example, if you earn 7% on a bond during a period when the inflation rate averages 3%, your inflation-adjusted return is 4%.
Inflation-adjusted return is also known as real return.
Since inflation diminishes the buying power of your money, it's important that the rate of return on your overall investment portfolio be greater than the rate of inflation. That way, your money grows rather than shrinks in value over time.
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- Present value, Real rate of return, time value of money
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