Real vs nominal return
Nominal return is the raw percentage your money grows. Real return is what is left after inflation, the part that actually buys more than before. If your fund grows 7% in a year when prices rise 2%, your nominal return is 7% but your real return is about 5%.
Why the gap matters
Over a year the difference looks small; over decades it is enormous, because both the return and inflation compound. What matters for retirement is purchasing power, what your money can buy, so a forecast in real terms is usually the honest one. A big nominal number can hide the fact that prices rose almost as fast.
Which to plan in
A rough shortcut is to subtract expected inflation from your nominal return to get a real figure. For long-term planning, thinking in today’s money (real terms) avoids being fooled by large but inflated numbers far in the future. Our tools let you switch between the two so you can see both.
Where it shows up
- Compound savings
- Historical backtest
- FIRE
When you read a return figure, check whether it is real or nominal, and compare it against the same kind. A “10%” historical stock return is usually nominal; the real figure after inflation is closer to 6-7%.