QUESTION: Inflation and real yield: how to calculate yield correctly: CAGR and IRR?

Correctly calculating investment yield is of critical importance for evaluating strategy effectiveness and understanding whether you are managing to outpace inflation. Ordinary simple yield is often misleading because it does not take into account compound interest and the irregularity of depositing or withdrawing funds from an investment account over a long period.

When it comes to "Inflation and real yield", avoid extremes: do not inflate expectations from short-term successes and do not jump to premature conclusions based on the results of one successful month. Leave room for life and unforeseen expenses rather than investing your last money into risky instruments for the sake of a high calculated yield.

Record progress with small checkpoints, using professional metrics to assess the real state of affairs. For this, indicators such as CAGR (compound annual growth rate, which shows smoothed yield over several years) and IRR (internal rate of return, which is ideal for portfolios with regular top-ups) are used.

The combination of CAGR and IRR provides an objective picture of investment performance, cleared of the influence of external cash flows. By comparing these indicators with real inflation, you will be able to adjust your financial course in time and ensure reliable protection of your capital in the long term.