How Much You Really Make Investing After Taxes, Fees and Inflation

When it comes to saving for your future, investing is important. But taxes, expenses and inflation put a dent in your earnings. To see just how big that dent is, investment company Thornburg studied the "real real returns" of investments.

In their study, Thornburg explains:

Nominal returns are a misleading driver of an investor's investment and asset-allocation planning. That's because they are significantly eroded by taxes, expenses and inflation. Examining the real real returns of individual asset classes over longer periods can help investors build more successful portfolios.

Here's an example they give. In the below chart, they show the return of a hypothetical $100 invested in the S&P 500 between 1983 and

2013. The return, before taxes, fees and inflation, is $2,346. That's about 11%.


But after all those extra costs, the "real real return" drops to $570, which is a 5.97% return.

Of course, that's still more than you'd earn keeping that $100 in a low-interest savings account or something. So the numbers aren't meant to throw investing out the window. It's also worth noting that they use a rate of .50% for expenses/fees, which is a reasonable average. But depending on your own assets and the investing firm you use, your fees could be a lot lower. For example, check out our article on the Five Best Investment Firms .


Category: Taxes

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