Nominal returns instead of after-inflation returns

Investment projections that are shown in nominal (pre-inflation) returns may give an impressions of earning a higher return than if shown in today’s dollar value.

When the return is shown in today’s dollars (i.e. valued at today’s dollar value), or Net Present Value (NPV), it may actually be a lot less.

Here is a projection of the ASX All Ords Accumulation Index in nominal and real terms for 1980 - 2006:

ASX All Ords Accumulation Index: Cumulative Return pre and post inflation

Here is the real return after inflation, which puts the product performance in a proper perspective.

ASX All Ords Accumulation Index: Cumulative Return pre and post inflation

During the period 1980 – 2006, what was an impressive average compound return of 15.3% p.a. pre-inflation, reduces to 9.3% p.a. when inflation is removed.

A 40% reduction in "wealth" would make a big difference in long-term projections!

Its best to clarify with your financial planner whether a long-term projection shows the real after inflation return (Net Present Value or NPV).

Contact us today for real advice, without marketing ploys.

Client Account Registration

Click here to register your interest for a Client Account with Archimedes Financial Planning.

Client Login

Restricted to existing clients of Archimedes Financial Planning.

Archimedes Clients are:

  • Professionals of any age
  • SME Business Owners
  • SMSF Trustees

Click Here to see our Client Map

Click the map to find out more about our Clients