When it comes to investment performance, the inflation-adjusted return is often a more accurate gauge than the unadjusted return. Also known as the real return, the Inflation-Adjusted Return takes into account the effect of inflation on an investment's performance over time. This makes it a more realistic comparison when evaluating different investments.Inflation can have a significant impact on investment returns.For example, let's say you invest in a stock that pays $100 in dividends each year. If inflation is 3%, then those dividends are worth less in terms of purchasing power each year. In other words, you would need to reinvest $103 of your dividends just to keep up with inflation and maintain your purchasing power.The bottom line is that when comparing investment options, be sure to consider the effects of inflation by looking at the real or inflation-adjusted return rather than just the unadjusted or nominal return.
