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  • 6% real

    When a statement is made that one should expect "6% real," what specifically does that mean?

    Does it only include your stocks?  Or does that include things like cash, CD, and bonds?

    Is that just what your account went up that year or is it what you have left if you were to harvest the gains and subtract the taxes?

     

  • #2
    Real returns mean inflation-adjusted returns.

    Nominal returns are unadjusted.

    If your investment goes from $100 to $108 over the course of one year and inflation is 2%, you have an 8% nominal return and a 6% real return.

    Every investment has its own return. Stocks, CD, bonds will have their own returns and the weighted average of them can be calculated to find the return on your overall portfolio. You can use a spreadsheet or let Personal Capital do the calculations for you.

    In terms of taxes, it depends upon the location of the investment, but that's not reported when calculating your real or nominal return. I know that my taxable account has a tax drag of about 0.5%, Roth money has none, and the taxation on tax-deferred accounts will depend upon my tax bracket in retirement, which is a complete unknown.

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    • #3
      Any time the term "real return" is used, it refers to the net return after factoring in inflation. So, for instance, if your portfolio returned a gross return of 9% over the course of the year and inflation ran 3% that year; then your real return would be 6%.

      This term is often helpful to focus an investor on the need to outpace inflation. For instance, if you're retirement nest egg were 100% CDs, currently yielding 2.5%, yet inflation is running 2.75%, your real return would be -0.25%. This means that you actually lost purchasing power over the course of the year. Your nest egg would buy less today than it would have a year earlier.

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      • #4
        When people say that the stock market, on average, returns 7% per year over the long-run, is this nominal, or real?

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        • #5
          Historical stock market data is about 10% nominal, 7% real for the S&P 500.
          Helping those who wear the white coat get a fair shake on Wall Street since 2011

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          • #6
            6%  :cry: :cry:

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            • #7


              nasty shrinkflation
              Click to expand...


              Great book title


              nasty shrinkflation over the years
              Click to expand...


              Great follow up album title.

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              • #8


                nasty shrinkflation over the years

                I was in the pool! I was in the pool!

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                • #9


                  I was in the pool! I was in the pool!
                  Click to expand...


                  I hope the Summer of PoF was as good as the Summer of George
                  An alt-brown look at medicine, money, faith, & family
                  www.RogueDadMD.com

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