Začínáme s investováním
Real vs. Nominal Return: What You Actually Keep After Inflation
Key takeaways
- Nominal return is gross appreciation; real return is appreciation after subtracting inflation.
- Only real return matters — it tells you whether you can actually buy more.
- At an 8% nominal return and 3% inflation, real return is roughly 5%.
- A savings account with low interest can produce a negative real return after inflation.
- Stocks have historically offered positive real returns, which is the main reason to invest in them.
Your portfolio grew 8% in a year. Great? It depends. If goods and services rose by 3%, you only got roughly 5% richer in real terms. Nominal return is the raw number; real return is what truly remains after inflation — and only the second one counts.
What nominal and real return mean
Nominal return is the appreciation you see on your statement — how many percent were added. Real return is that number after subtracting inflation. It shows whether you can actually buy more with your money than before. And that is what investing is about — not a big number, but purchasing power.
How to calculate it
As a rough approximation, simply subtract inflation from the nominal return:
- Nominal return 8% − inflation 3% ≈ real return 5%.
- Savings account 2% − inflation 4% ≈ real return −2% (you are getting poorer in real terms!).
(The precise formula is slightly more involved, but this simple subtraction is good enough for orientation.)
Why stocks
The main reason to accept the volatility of stocks is precisely the real return. Broad equity indices have historically offered positive real appreciation (in the order of 5–7% per year after inflation over long periods) — the power that truly builds wealth. A savings account typically only helps preserve real value, not multiply it.
Think in real numbers
When you plan retirement income or a goal 20 years out, calculate in today's money. "I will have 5 million" sounds nice, but in 20 years with inflation those millions will have different purchasing power. That is why the growth projection has a real-value toggle — so you see the true result, not just a large nominal number. How inflation works is also explained in the article on saving vs. investing.
FAQ
What is the difference between nominal and real return?
Nominal return is gross appreciation as shown on your statement. Real return is that figure after subtracting inflation — it shows whether you can actually buy more. For true wealth building only real return counts.
How do I quickly calculate real return?
As a quick approximation subtract inflation from the nominal return. At 8% appreciation and 3% inflation, real return is roughly 5%. The precise formula is a little more complex, but this subtraction is good enough for orientation.
Can real return be negative?
Yes, and often is — for example with a savings account whose interest rate is lower than inflation. Then money nominally grows but its purchasing power falls. It is a silent loss you cannot see directly on your statement.
Why choose stocks because of real return?
Because broad equity indices have historically offered positive real returns (roughly 5–7% per year after inflation over long periods), while a savings account mainly just preserves real value. Positive real appreciation is the main reason to accept the volatility of stocks.