Real return
An investment return after accounting for inflation.
Definition
An investment return after accounting for inflation.
Why this concept matters
It more accurately measures how your capital’s purchasing power changes.
How it works
The nominal return is adjusted for price changes to estimate the gain or loss in purchasing power.
Calculation guide : Real return = (1 + nominal return) ÷ (1 + inflation) − 1
What to watch
Subtracting inflation is only an approximation of the exact formula.
Simple example
With a 5% return and 2% inflation, the exact real return is about 2.94%.
Example currency : United Kingdom (GBP). The reference country controls the example currency.
Try the mechanism
Educational estimate only, with no personalised advice or guarantee.Related concepts
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