Real Return Calculator
A fund that returned 7% did not make you 7% better off. Fees come out of the return, tax comes out of the gain, and inflation quietly reduces what the rest can buy. This shows what is left of a headline number once all three have been paid.
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Three deductions, in order
Fees come off first, because they are charged on the whole holding whether or not it rose. Tax comes off the gain that is left. Inflation then reduces what those remaining units of money can buy. Applying them in that order matters: tax is not charged on the fee you already paid.
A 7% return with 0.4% of fees, tax at 28% and inflation at 2.5% leaves a real return near 2.2%. That is not a rounding difference from 7 — it is roughly a third of it.
Subtracting inflation is not quite right
The common shortcut is to take inflation off the return. The correct form divides: a nominal 7% with 2.5% inflation gives 4.39% real, not 4.5%. The gap is small at these levels and grows quickly when either number is large, which is why it matters in periods of high inflation rather than in calm ones.
Fees do more damage than their size suggests
A fee is charged on everything you hold, every year, including the growth it has already prevented. Half a percentage point sounds trivial against a 7% return; over thirty years it removes a sixth of the final amount. This is the strongest argument for cheap index funds, and it does not depend on any view about markets.
When tax applies changes the answer
The calculation here treats tax as falling on the gain at the end. Where tax is levied annually on the return instead, the drag is worse, because the amount taken never compounds. Tax-sheltered accounts differ in exactly this way, which is why the wrapper often matters more than the fund inside it.
Read the real figure, not the headline
Whether an investment kept up depends on the real return, not the nominal one. A deposit paying 4% while prices rise 4% has preserved nothing, and after tax it has lost. Positive nominal returns can hide a steady loss of purchasing power, and only this calculation makes that visible.
Frequently asked questions
Why not just subtract inflation from the return?
Because the correct form divides rather than subtracts. At low rates the difference is small; when inflation or returns are high it becomes significant.
What tax rate should I use?
The rate that applies to investment gains where you live. It differs from the rate on wages in most countries, and often differs again between interest, dividends and capital gains.
Do fees really matter that much?
Yes. A fee is charged on the whole holding every year, so it compounds against you. Half a percentage point over thirty years costs roughly a sixth of the final amount.
Can the real return be negative while the account grows?
Easily. If the return after fees and tax is below inflation, the balance rises while what it buys falls.