Real Return
Quick Answer
Real return is the annual investment return adjusted for inflation, showing the actual increase in purchasing power.
Definition
Real return is the annual investment return adjusted for inflation, showing the actual increase in purchasing power.
Explanation
Real return = Nominal return - Inflation rate. For example, if a stock portfolio returns 10% and inflation is 3%, the real return is about 7%. Real return is what matters for growing purchasing power. Bonds and cash often have low or negative real returns after inflation.
Understanding real returns helps set realistic expectations for investment growth and retirement planning.
Example
A savings account earning 4.5% interest with 3% inflation provides a real return of only 1.5% after inflation.
Frequently Asked Questions
What is Real Return?
Real return is the annual investment return adjusted for inflation, showing the actual increase in purchasing power.
How does Real Return work?
Real return = Nominal return - Inflation rate. For example, if a stock portfolio returns 10% and inflation is 3%, the real return is about 7%. Real return is what matters for growing purchasing power. Bonds and cash often have low or negative real returns after inflation.Understanding real returns helps set realistic expectations for investment growth and retirement planning.
Can you give an example of Real Return?
A savings account earning 4.5% interest with 3% inflation provides a real return of only 1.5% after inflation.
Free Excel Templates
Also try our free Investment Portfolio Tracker template
Monitor your investment portfolio performance. Track stocks, bonds, ETFs, and mutual funds with automatic gain/loss calculations.
Download Investment Portfolio TrackerAlso try our free Retirement Savings Projection template
Project your retirement savings growth over time. Calculate if you're on track to meet your retirement goals with compound interest.
Download Retirement Savings Projection