Real Return

Personal Finance

Real return is your investment's nominal return minus inflation. If your portfolio earned 8% last year and inflation was 3%, your real return was 5%. This is what actually grew your purchasing power. Nominal returns headline-grab; real returns build wealth. Long-term US stock real returns have averaged about 7% annually; long-term bonds about 2%. Cash has historically returned roughly zero in real terms after inflation. When evaluating any investment, always ask: what's the expected real return after inflation, fees, and taxes? Without that lens, you can earn 10% nominally and still be losing ground.