How to Calculate Real Value

by Sam Grover ; Updated July 27, 2017

Real value is the value of an investment adjusted for inflation. It is crucial to find the real value of your investment, particularly if you are holding it for an extended period of time, as the value of money decreases, so does your investment's value, and you need to compensate for this to understand how much you're actually making.

The reason for this is because $1 buys less this year than it did last year, which in turn bought less than it did the year before that. Money is only as valuable as the goods it can buy.

Step 1

Find the return on your investment. So, if you bought some stocks a year ago for $1,000 that are now worth $1,100, then the nominal return on your investment is 10 percent.

Step 2

Find the value of inflation for the period in question. So, if inflation was 5 percent in the same year, then it takes $1,050 to buy what $1,000 could have bought a year previous.

Step 3

Subtract the inflation percentage from the nominal return on your investment -- 10 percent minus 5 percent is 5 percent. The real value of the return on your investment is 5 percent, or $50.

About the Author

Sam Grover began writing in 2005, also having worked as a behavior therapist and teacher. His work has appeared in New Zealand publications "Critic" and "Logic," where he covered political and educational issues. Grover graduated from the University of Otago with a Bachelor of Arts in history.

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