GLOSSARY TERM
Real Return vs Nominal Return
Nominal return is the return on an investment before inflation is taken into account. Real return shows how much your money actually grew after inflation.
What does this mean in practice?
A portfolio may grow in number, but that does not always mean your purchasing power grew by the same amount. If inflation is high, part of your return only reflects rising prices. Real return gives a clearer picture of what your investment growth means in real life.
Example
If your investment returns 8% in a year and inflation is 3%, your nominal return is 8%, but your real return is about 5%. In other words, your money grew, but part of that growth was offset by higher prices.
Why it matters
Long-term investing is not only about seeing bigger numbers in your account. It is about increasing what your money can actually buy in the future. Real return helps you focus on that.
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