Know the 3 R’s of Personal Finance… Real Rate of Return

Know the 3 R’s of Personal Finance… Real Rate of Return
07 May 2015

RRRI recall a seminar I taught years ago at which I had a woman questioned my criticism of CDs (Certificates of Deposit). Actually, I believe she called me a “young whippersnapper”, so you can understand this was a few years back. Nonetheless, she recalled a day back when you could get 12% CDs. She looked perplexed as I correctly guessed when she had opened those CDs; she wanted to know how I could possibly have known.
I told her it was because inflation rates were between 10%-14% in those years. My point was that if you made 12% on a CD and inflation was 12% your real rate of return was 0% that year! Wait, it gets worse… You will also receive a 1099 from the bank for the 12% interest you made. So, in reality, you LOST money that year.
You must always subtract inflation AND taxes from your gross rate of return to get your Real Rate of Return. It’s an important aspect of personal finance and one that is often overlooked…

Good luck!


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Jeffrey Johnston

Jeffrey is originally from Solon, Iowa. He currently resides in Swisher, Iowa with his wife, Prudence, and his three children, Seth, Ian, and Roman. He graduated from the University of Northern Iowa in 1989, where he majored in Finance and Investments. He has 24 years of experience in the investment and estate planning business. He is currently the President of “Premier Investments of Iowa, Inc.” Jeffrey’s main focus is Estate and Investment Planning for Senior Citizens and Pre Retirees. Jeffrey became a Chartered Financial Consultant (ChFC) in 2001. He is the author of many articles on industry related topics and he is a frequent seminar presenter. He is a Board Member TRIAD Linn County Seniors Against Crime, and he is also a past Board Member of the Heritage Area Agency on Aging Task Force. He is a member of CEO Roundtable in Cedar Rapids, a Daybreak Rotary Member, and a member of the Cedar Rapids Estate Planning Council. In March of 2009, Jeffrey became the host of the Premier Investments of Iowa Financial Hour which airs every Tuesday Evening from 6PM -7PM, on WMT 600 AM Radio. In his free time he enjoys golf, fishing, scuba diving, traveling, and coaching son’s basketball teams.