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Don’t Make Me Say I Told You So 83

the “real return.” The real return is the annual percentage return
for an investment, which is adjusted for changes in prices due

to inflation or other external effects, such as taxes.

This “real return” is the number that will determine how
much purchasing power you will have over the course of your
retirement. For example, if your bank pays you interest of 3%

per year on the funds in your savings account, and you’re

in the 30% tax bracket, you will actually realize 2.1% on your
investment after taxes are taken into account.

You also need to account for inflation, which will reduce your
purchasing power over time. If you earn 3% on a savings account,
after paying 30% in taxes, your return is 2.1%. If the inflation

rate is currently 3%, then the real return on your savings today

would be -0.9%. In other words, even though the nominal rate
of return on your savings is 3%, the real value of your savings
actually decreased by 0.9% during a one-year period.

Here is a chart showing the real returns for various asset

classes from 1926 to 2019, adjusted for taxes and inflation:

Chapter 3: You Must Have Growth In Your Portfolio