Investment Simulator How inflation changes the buying power of an investment in Australia
Convert a future Australian-dollar balance into today's buying power and calculate the real return on an illustrative projection.
A future balance tells you how many dollars you could have. An inflation-adjusted balance estimates what those dollars could buy in today’s terms. A$10,000 growing at 6% a year for 10 years becomes A$17,908.48. With illustrative inflation of 3% a year, that would buy about what A$13,326 buys today.
Convert the future balance into today’s dollars
Divide the future balance by (1 + annual inflation)^years. In this example, A$17,908.48 ÷ 1.03^10 is about A$13,326. The real annual return uses the same idea at the annual level. Divide 1.06 by 1.03 and subtract one to get about 2.91% a year.
| Measure | Amount |
|---|---|
| Starting balance | A$10,000.00 |
| Future balance at 6% | A$17,908.48 |
| Buying power in today’s dollars at 3% inflation | A$13,325.59 |
Match the dollar basis of your goal
If a goal is priced in today’s dollars, compare it with the inflation-adjusted balance. If you have already estimated the goal’s future price, compare that with the future balance. Mixing the two can make a projection appear closer to the goal than it is.
The example uses constant rates, no additional deposits and no fees or tax. Actual inflation can change over time, and the price of a specific purchase can move differently from broad inflation. For a worked introduction to compounding, see ASIC Moneysmart’s compound interest guide.
See how to compare return scenarios to test the effect of changing one assumption at a time.