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 ... 
Pretax Rate Of Return
The rate of return on an investment that does not take the taxes ... 
InflationProtected Security  ...
A type of fixedincome investment that guarantees a real rate ... 
Nominal Interest Rate
The interest rate before taking inflation into account. The equation ...

Term
What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Economics
Understanding Interest Rates: Nominal, Real And Effective
Interest rates can be broken down into several subcategories that incorporate various factors such as inflation. Smart investors know to look beyond the nominal or coupon rate of a bond or loan ... 
Investing Basics
What Does Nominal Mean?
Nominal refers to an unadjusted value or change in value. 
Investing Basics
What is a Nominal Value?
The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. 
Fundamental Analysis
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Taxes
Capital Gains Tax 101
Find out how taxes are applied to your investment returns and how you can reduce your tax burden. 
Economics
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Economics
Interest Rates: Nominal and Real
An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount. Interest rates are the primary yardstick for measuring how much return lenders will get. However, ... 
Investing Basics
Inflation Protected Securities: How They Work
Learn how the U.S. Treasury inflationprotected securities (TIPS) work, which considerations investors should keep in mind and for whom TIPS are most suitable. 
Bonds & Fixed Income
Introduction To Treasury InflationProtected Securities (TIPS)
If you want to protect your portfolio from inflation, all you need are a few TIPS.

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 >> 
Is the nominal value of a security ever also the real value?
Learn more about nominal values and real values. Find out how these market values change and if they may ever converge for ... Read Answer >> 
How does the Fisher effect illustrate returns on bonds?
Learn how the Fisher effect shows the impact of expected future increases in inflation on the prices of bonds and their interest ... Read Answer >>