True growth rate accounting for inflation

10 hours ago

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Inflation reduces the purchasing power of currency over time.
The true rate of investment growth must account for inflation.
For periodic compounding, the true growth rate is (i - r) / (1 + r), which is less than the intuitive i - r.
To achieve a desired true growth rate g with periodic compounding, the investment rate i must be greater than g, specifically i = g + rg + r.
For continuous compounding, the true growth rate simplifies to g = i - r, matching intuitive expectations.
The analysis is based on principles from Robert C. Thompson's work on the true growth rate and inflation.

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