Real Return, The Real Deal!

What is INVESTMENT RETURN?  Easy. Let’s say I invest $1.  A year later, my dollar is worth $1.10.  I just made 10% on my money. I had a 10% investment return.

(this is simple math, follow me here: $1 x a 10% return =  $.10 + the original $1 = $1.10.

But the question that matters most is what was my REAL RETURN?

What’s “REAL RETURN” you ask? Simple. REAL RETURN takes into account the return on my investment (10% in the example above), AND… INFLATION & TAXES. So what…

Now pay attention for just a minute as we continue…

Let’s consider inflation (the rising cost of goods and services) at 3%. Let’s consider taxes (fees on goods and services paid to governments) at 1%. Now, let’s add 3% + 1% to get 4%.  What does that 4% represent?

COST!

That’s right, COST! How? Well, consider this: a 10% return minus 3% for inflation and 1% for taxes equals a real return of 6%. Now, that’s a dramatically DIFFERENT return than 10%.

What does this mean to you? It means the return you’re seeing on statements, sales materials, and performance sheets for an investment  usually tells only half of the story, the “investment return” story. But the other half of the story is not being told. It’s the “REAL RETURN” story that matters most to your long-term wealth. Why?  Because taxes and inflation are real. They degrade your purchasing power!

Does this help make money subjects simple for you? Add your comment below!