COMPOUND INTEREST · 4 MIN READ
Nominal return and real purchasing power
A higher account balance does not mean purchasing power has risen by the same percentage when the general price level also increases.
Converting future value into today's money
Real value is estimated by dividing future value by the cumulative inflation factor. This is a purchasing-power conversion, not a guaranteed forecast of prices.
When you enter an effective annual return, the monthly rate should be derived using the twelfth root—not by simply dividing the annual rate by twelve.