What is the difference between rate-of-return and real rate-of-return?
As an investor, the true test is not what you make on your investments but what you get to keep after inflation and taxes. Let’s assume you have invested in CD that is returning 5.5%. What is your real rate of return?
Total return = 5.50%
less 28% Fed tax = -1.54%
less Inflation = -4.00%
Real rate of return = -0.04%
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