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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Your investment return after subtracting inflation. Shows how much your purchasing power actually grew.
Why It Matters
Nominal returns can be deceiving. If your portfolio gained 8% but inflation was 4%, your real return was only 4%. Real returns tell the true story of wealth growth. The S&P 500's historical nominal return is about 10% per year, but the real return is closer to 7% after inflation. Bonds often have real returns near 0-2%, which is why stocks are essential for long-term growth.
Key Points
- Calculate it: Nominal Return - Inflation Rate (approximately; exact formula uses division)
- Stocks: ~7% historical real return. Bonds: ~1-2%. Cash/savings: often negative real return
- During high inflation periods, real returns on cash and bonds can turn sharply negative
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Related Terms
Common Questions
Your investment return after subtracting inflation. Shows how much your purchasing power actually grew. Nominal returns can be deceiving. If your portfolio gained 8% but inflation was 4%, your real return was only 4%.
Nominal returns can be deceiving. If your portfolio gained 8% but inflation was 4%, your real return was only 4%. Real returns tell the true story of wealth growth. The S&P 500's historical nominal return is about 10% per year, but the real return is closer to 7% after inflation. Bonds often have real returns near 0-2%, which is why stocks are essential for long-term growth.
Calculate it: Nominal Return - Inflation Rate (approximately; exact formula uses division)
Stocks: ~7% historical real return. Bonds: ~1-2%. Cash/savings: often negative real return
During high inflation periods, real returns on cash and bonds can turn sharply negative