What Is Real Return?
Definition
Real Return: The return on an investment or deposit after inflation is taken out; the change in purchasing power: (1 + nominal return) / (1 + inflation) − 1.
Real return is the return on an investment or deposit after inflation is taken out. It shows how much your purchasing power actually grew. If the nominal return is below inflation, the real return is negative: you have more money but it buys less. Subtracting inflation from the nominal return gives an approximation; the exact method divides.
Where it appears in the formulas
real return = (1 + nominal return) / (1 + inflation) − 1 (the Fisher equation). Both rates must cover the same period: compare a yearly return with yearly inflation. The investment return and deposit interest calculators give nominal returns and leave inflation out. The inflation calculator shows what the same amount buys later.