# How should I calculate how much my money is _grown_?

I invest in multiple streams - equities, mutual funds, bank deposits etc. Depending on the asset class, my rate of return is different, naturally. Some asset classes generate higher ROI (with higher risk) while others generate lower (with lower risk).

My primary objective of investing is to grow my money; otherwise I would have kept it in my home (assuming my home is safe - kidding).

At some point, I want to calculate how much my money is grown. What I learned from this forum and the internet is that - there are two insects those eat money:

1. Inflation
2. Tax (include any kind of tax and fees may be)

So, if I want to calculate how much my money is grown, I think (I am not sure) I should subtract these two factors from returns.

Example:

My ROI is 10%. Inflation is 5%. Taxes I have to pay when my investment is cashed are 3%.

``````Money Grown = ROI - (Inflation + Taxes);
Money Grown = 10 - (5 + 3);
Money Grown = 2;
``````

So apart from what ROI I get, my money only grown by 2%.

Is my understanding correct?
Are there any other factors I should consider while calculating actual returns?
Is there any established formula to calculate actual returns?

• To help you get started: inflation affects the entirety of your investment, but you're probably being taxed only on the investment gains. – mamster Mar 10 '19 at 14:57
• Ignore taxes for now. They don't come into play until after you have withdrawn the money from your investment, and will be the same regardless of investment type. Fees charged while the money is invested do eat into growth. Inflation may offset ROI entirely; taxes cannot (unless you have a 100% tax rate). – chepner Mar 10 '19 at 16:56

You are talking about two concepts using different terms. The standard financial terms when talking about inflation are "real" return and "nominal" return. "Nominal" return is just the actual mathematical return, not adjusted for inflation or anything else. "Real" return is your return after adjusting for inflation. Since the things you can do with your money now cost 5% more (but see my note below), your "real" return is the "nominal" return adjusted for inflation.

You also describe pre-tax and after-tax returns. Remember, though, that you are only taxed on the gains in your portfolio (and in some cases you are taxed less if you have held your investments for a long period of time). So the formula for real after-tax return `R` given a nominal pre-tax return `r`, inflation rate `I` and tax rate `T` is:

``````R = r*(1-T) - I
``````

``````R = 10*(1-0.03) - 5 = 4.7%