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Real gross domestic product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). [1] This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output.
In this analysis, the nominal rate is the stated rate, and the real interest rate is the interest after the expected losses due to inflation. Since the future inflation rate can only be estimated, the ex ante and ex post (before and after the fact) real interest rates may be different; the premium paid to actual inflation (higher or lower).
Any investment with a nominal annual return (i.e., unadjusted annual return) less than the annual inflation rate represents a loss of value in real terms, even when the nominal annual return is greater than 0%, and the purchasing power at the end of the period is less than the purchasing power at the beginning.
The rule suggests that you can safely withdraw 4 percent of your investment portfolio in your first year of retirement and then adjust for inflation in future years to determine the optimal ...
Related is the concept of "risk return", which is the rate of return minus the risks as measured against the safest (least-risky) investment available. Thus if a loan is made at 15% with an inflation rate of 5% and 10% in risks associated with default or problems repaying, then the "risk adjusted" rate of return on the investment is 0%.
Thus at 3.5% inflation using the rule of 70, it should take approximately 70/3.5 = 20 years for the value of a unit of currency to halve. [1] To estimate the impact of additional fees on financial policies (e.g., mutual fund fees and expenses, loading and expense charges on variable universal life insurance investment portfolios), divide 72 by ...
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