What is the 'AfterTax Real Rate Of Return'
The aftertax real rate of return is the actual financial benefit of an investment after accounting for inflation and taxes. The aftertax real rate of return is an accurate measure of investment earnings and usually differs significantly from an investment's nominal rate of return, or its return before inflation and taxes. However, investments in taxadvantaged securities (such as municipal bonds) and inflationprotected securities (such as TIPS) as well as investments held in taxadvantaged accounts such as Roth IRAs will show less discrepancy between nominal returns and aftertax real rates of return.
BREAKING DOWN 'AfterTax 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 aftertax real rate of return, not the nominal return.

Nominal Rate Of Return
The amount of money generated by an investment before expenses ... 
AfterTax Return
The return on an investment including all income received and ... 
Real Rate Of Return
The annual percentage return realized on an investment, which ... 
InflationProtected Security  ...
A type of fixedincome investment that guarantees a real rate ... 
Pretax Rate Of Return
The rate of return on an investment that does not take the taxes ... 
Nominal
An unadjusted rate, value or change in value. This type of measure ...

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What is a Nominal Value?
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What is the difference between real and nominal interest rates?
Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >> 
How do nominal interest rates in finance differ from the nominal rate of interest ...
Read about the subtle difference between a financial instrument's nominal interest rate of return and the general nominal ... Read Answer >> 
The real rate of return is the amount of interest earned over and above the?
The real rate of return is the amount of interest earned over and above the: a. discount rate. b. tax rate. c. inflation ... Read Answer >> 
What can cause the rate of return to be negative?
Learn how poor company or sector performance, economic turmoil and inflation can cause the rate of return on an investment ... Read Answer >> 
Can real interest rates be negative?
Discover the circumstances that can cause real interest rates to be negative and learn how to calculate the values of real ... Read Answer >> 
The real rate of return is the amount of interest earned over and above the:
a. discount rate. b. tax rate. c. inflation rate. d. riskfree rate of return. Answer: C Since the real rate of return measures ... Read Answer >>