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In this case, how much of the 4k should be re-invested to counter the inflation?
by slig 14y ago
In this case, how much of the 4k should be re-invested to counter the inflation?
- Retric 14y agoThat's a function of both inflation rate and your expected ROI. Using 3% inflation and 6% ROI you need to reinvest ~51.6% of your income to break even. (1-(ROI-((1/(1-inflation rate))-1)))/ ROI = 1-(.06-((1/(1-.03))-1))/.06 = ~51.6% Edit: Ok there must be a simpler way to write that... ((1/(1-inflation))-1) / ROI = ((1/(1-.03))-1)/.06 = 51.6% PS: Just keeping what left over when you subtract the inflation rate from your ROI is close and you don't actually know the inflation rate or your long term ROI most of the time.
- slig 14y agoGot it. Thanks!