1. What is Real ROI?

Real ROI (Return on Investment) is the nominal return adjusted for inflation, showing the actual purchasing power of your investment returns. It's calculated using the Fisher equation to account for the eroding effects of inflation.

2. How Does the Calculator Work?

The calculator uses the Fisher equation:

Where:

• \( \text{Nominal ROI} \) — Unadjusted investment return (decimal)
• \( \text{Inflation Rate} \) — Annual inflation rate (decimal)

Explanation: The equation adjusts your nominal returns by removing the inflation component, showing what your investment actually earned in terms of purchasing power.

3. Importance of Real ROI Calculation

Details: Real ROI is crucial for understanding the true value of investments over time. A positive nominal return might actually be a loss in real terms if inflation is high enough.

4. Using the Calculator

Tips: Enter nominal ROI and inflation rate as percentages (e.g., 5 for 5%). The calculator converts these to decimals for the calculation.

5. Frequently Asked Questions (FAQ)

Q1: Why calculate Real ROI instead of just using Nominal ROI?
A: Nominal ROI doesn't account for inflation. A 5% return with 3% inflation is very different from a 5% return with 6% inflation.

Q2: What's a good Real ROI?
A: Ideally, you want positive Real ROI. Historically, stocks have averaged about 6-7% real return long-term.

Q3: Can Real ROI be negative?
A: Yes, if inflation exceeds your nominal return. This means your investment lost purchasing power.

Q4: How often should I calculate Real ROI?
A: At least annually, as inflation rates change over time and affect your returns differently each year.

Q5: Does this work for all types of investments?
A: Yes, the Fisher equation can be applied to any investment to determine its real return.