A nominal return means little until taxes and inflation are removed. Enter your return, tax rate and inflation to see the real growth of purchasing power.
The order of operations stings: tax applies to the nominal gain, including the part that merely offsets inflation. At 7% nominal, 26% tax and 2.5% inflation, the real return is roughly 2.6%.
Tax deferral helps — accumulating ETFs and pension wrappers let the pre-tax amount keep compounding, which this yearly-taxation model understates.
Where the tax falls matters as much as its rate. A yearly tax on gains removes money that would otherwise have compounded, whereas a tax paid once on disposal leaves the whole balance working until then. Over decades the two produce visibly different outcomes at identical headline rates.
Inflation is also personal. Headline CPI is a basket average, and a household whose spending is weighted toward rent, energy or childcare can experience a materially higher rate than the published figure. Planning against your own spending pattern is more accurate than planning against the index.
The order this calculator applies is tax first, then inflation, which matches how the money actually arrives: the tax authority takes its share of the nominal gain regardless of what prices did. Reversing the order would flatter the result and describe a system that does not exist.
Frequently asked questions
What is the real return on an investment?
The growth of actual purchasing power once taxes and inflation are removed. A 7% nominal return with 26% tax and 2.5% inflation leaves roughly 2.6% real.
Why do taxes make inflation worse?
Tax applies to the whole nominal gain — including the part that merely compensated inflation. In high-inflation years you can owe tax on a gain that bought you nothing.
How do I improve my real return?
Cut the controllables: lower fund fees, use tax-deferred wrappers so the pre-tax amount keeps compounding, and avoid cash allocations earning below inflation for money you will not need soon.