Real return

A nominal return is the percentage gain in money terms, the figure normally quoted by funds, banks and investment platforms. The real return adjusts that figure for inflation over the same period. The precise calculation is (1 + nominal return) ÷ (1 + inflation) − 1; simply subtracting inflation from the nominal return gives a close approximation when both numbers are small. A real return can be negative even when the nominal return is positive, if inflation is running faster than the investment is growing.

Real returns are what matter for long-term goals, because the purpose of investing is usually to be able to buy things in the future, not merely to hold a larger number. Comparing assets on a real basis changes the picture: cash that looks safe can lose purchasing power year after year, and a bond yielding less than expected inflation offers a negative real yield. Historical returns and retirement projections are most meaningful in real terms, since this strips out the distortion from very different inflation rates across decades and countries.