Question

Which of these affect real investment value? Check all that apply.

fees and expenses
inflation
nominal interest rate
pretax returns
taxes

Answer 1

All of them. Briefly:

- Fees and expenses — reduce the cash you keep, lowering real returns.
- Inflation — erodes purchasing power, so nominal gains must be adjusted to get real value.
- Nominal interest rate — the starting (before-inflation) return; real return ≈ nominal − inflation.
- Pretax returns — determine the base return that will be reduced by taxes and fees, affecting real value.
- Taxes — reduce after-tax cash flows, lowering real returns.

Net real return (approx) = (1 + nominal return) × (1 − fees) × (1 − tax impact) / (1 + inflation) − 1.