Investopedia explains 'After-Tax Real Rate Of Return'
Over the course of a year, an investor might earn a nominal return of 12% on his stock investment, but his real return, the money he gets to put in his pocket at the end of the day, will be less than 12%. Inflation might have been 3% for the year, knocking his real rate of return down to 9%. And since he sold his stock at a profit, he will have to pay taxes on those profits, taking another 2% off his return. The commission he paid to buy and sell the stock also diminishes his return. Thus, in order to truly grow their nest eggs over time, it is essential that investors focus on the after-tax real rate of return, not the nominal return.
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