Many people invest without considering the consequences of taxes and inflation have on their investments. The following table shows how someone can lose money even if the return on their investment in five percent.

Investment	$10,000
5 percent interest earned on investment	$500
Costs:
28 percent federal income tax paid on $500	140
3 percent state income tax paid on $300	15
Inflation on $10,000 (10-year average: 3.6%)	360
Inflation on $500 interest	18
Total costs	$533
Net purchasing power ($500 gain - $533 costs)	-$33
Real rate of return (-$33 / $10,000)	-.33 %

There will always be the dilemma of balancing risk with return, but often the over-cautious investor chooses investments so conservative money put in them does not grow. You may find after careful study of the wide variety of investments available, and the specific investments you are considering, that you may be able to accept more risk, and potentially more growth, than you once thought possible. Basic Investment Options will give you more information to help make these decisions.

Many investors feel they will be satisfied if they can make at least two percent more than taxes and inflation. The following table will give you an idea of what type of return you will need to stay ahead of taxes and inflation and earn an additional two percent.

If Inflation Is This Much (in Percent)	You Must Earn This Much to Realize a Real 2 Percent Gain
	Income Tax Rate (in Percent)
	15	28	31
3	5.9	6.9	7.2
4	7.1	8.3	8.7
5	8.2	9.7	10.1
6	9.4	11.1	11.6
7	10.6	12.5	13.0
8	11.8	13.9	14.5
9	12.9	15.3	15.9

Source: Kathryn M.A. Anderson, C.F.P., C.P.A., Grayslake, Illinois.