When calculating the return objective for an IPS are you adding inflation to the total return or are you compounding it? ie. 5% + 2% = 7.0% or (1.05)*(1.02)-1= 7.1% I feel like compounding is more accurate but a lot of examples are adding it. Same for mgmt fees for an institutional account??? Also, are you automatically including inflation in the return objective or only if they explicitly state they want to maintain the real value, or if expenses increase with inflation? I’ve been increasing all return objectives by the amount of inflation whenever inflation is provided. Cheers, Adam
It seems like the case that for institution they use compounding and for individual they add them.
However both answers should be acceptable.