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Nominal Return
Definition
Nominal return is the investment return before adjusting for inflation, representing the raw percentage gain or loss.
Explanation
Nominal return is what you see on your investment statements — the actual percentage change in dollar value. However, nominal returns can be misleading during high inflation. A 6% nominal return when inflation is 5% means only 1% real growth.
Always consider both nominal and real returns when evaluating investment performance. Financial projections should use realistic nominal return assumptions based on asset class.
Example
A bond paying 5% nominal return with 3.5% inflation yields a real return of just 1.5%, barely outpacing inflation.