Before we start diving into the advantages and disadvantages of real return, what needs to be determined is what is real return on investment? The real return is the annual percentage return that comes with investing which may be adjustable with inflation and other factors.

Investing is a complicated phenomenon. There are many factors that need to be considered while investing because the disbalance in one could alter the other. Moreover, it is more of a wait and watches kind of thing, you cannot just predict the outcome, but you can most definitely lay out the facts and figures and play your best shot.

But why is this particular factor important when investing? What can calculation of pricing be impactful to the value of investing? Here are some of the reasons why it is an important factor.

Determination of inflation:

By calculating the overall pricing of taxes and the inflation rate, one can protect their investment from going downhill. Inflation is known to cut down the value of the investment because as time moves forward, the inflation rate does vary. This inconsistency could be a resisting factor in terms of sustaining profitable value which is why with the help of real return, you can tone down the bump by calculating the estimated inflation rate and its potential effect on the investment.

Enhanced performance:

When the inflation rate is successfully determined, and the causes of its impact ac be calculated up to an estimate, the resulting investment can be better enhanced in terms of value and profit. The investment that you have indulged in should be protected from all that could possibly harm or reduce its value. In this way,  investment is produced that opts for better performance and creates an enhanced effect long term.

Risk versus reward:

With every aspect, calculation and estimation determine a better outcome than a predicted one. I would be making all the mathematicians happy with this idea, but it is true. Similarly, with investment, when you calculate the real rate of return, you can easily determine the risk factors that could obliterate the original value and the potential reward that can be obtained once the risk factors are eliminated. In general, the inflation rate indirectly helps to determine the risk versus reward element of investing.

Accurate:

There is another thing that you will find when talking about interest rates which are nominal rates. The difference between these two rates is of adjustability, you will find upon exploring the two that nominal rates do not generally depend upon inflation which is why they do not adjust with inflation while the real rates are adjustable. Moreover, if you sought out for advice with professionals, you will come to know that the nominal rates are what is advertised but the real rates provide a more accurate representation. They give a historical view of the values that have been presented and provide a precise, calculated and clear picture of the predicted values.