Real return
Also called: inflation-adjusted return
Your return after inflation — what your money actually gained in purchasing power.
A savings account paying 3% while prices rise 4% has a negative real return: the balance grew and you can buy less than before.
Quoted returns are almost always nominal — before inflation. That is not dishonest, but it flatters, and over long periods the gap between nominal and real is most of the story.
When planning anything decades away, think in real terms throughout. It produces less impressive numbers and far better decisions.
Then subtract costs as well. A 7% assumption with 3% inflation and 1% of fees is a 3% real outcome, which is a different plan entirely from the one the 7% suggested.
Words on this page
- Inflation — The gradual rise in prices that means the same money buys less over time.
- Expense ratio — The percentage of your money a fund charges each year, taken automatically whether it performs or not.
- The invisible leak — Investment fees — small, automatic, charged every year, and almost never noticed.
Related terms
Covered properly in Learn.