Inflation and the Real Rate of Return

Alexis DuffyArticle

Is your money gaining or losing purchasing power?

Provided by The PensionmarkMeridien Team

The real rate of return is an important personal finance concept to understand.

It’s the rate of return on your investments after inflation. The real rate of return indicates whether you are gaining or losing purchasing power with your money.

So with inflation checking in at a 5% annual rate, does that mean any investment with less than a 5% rate of return is losing purchasing power? 1

That’s where it gets a little complicated.

In theory, any investment with less than a 5% rate of return may lose purchasing power. But the financial markets are giving mixed signals about how long they expect inflation will stay at its current level. Fed Chair Jerome Powell has indicated that the inflation numbers we are seeing won’t be long lasting and can be attributed to improving economic conditions. 2

In the end, the real rate of return is only one factor to consider when building a portfolio. Your time horizon, risk tolerance, and goals are the primary drivers.

If inflation is starting to worry you, please reach out. We’d welcome the chance to hear your thoughts.

To read some of our other articles on inflation:
Inflation Outlook 2021
Inflation Can Be a Scary Word
Investing During Periods of Inflation

The PensionmarkMeridien Team may be reached at 866-871-9963
or
meridienteam@pensionmark.com.

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.  

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).  

Citations
1. CNBC.com, June 10, 2021
2. CNBC.com, May 3, 2021
 


 


 

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