Nominal vs Real Return Investing
**Nominal returns** are what your statement shows. **Real returns** subtract inflation—if your portfolio earned 7% and CPI was 3%, your real return is roughly 4%. Long-term plans should use real rates to avoid overconfidence.
Step by step
1. Pick a CPI assumption
2–3% is common for planning; stress-test higher inflation.
2. Convert portfolio return
Approximate real return ≈ nominal minus inflation (Fisher equation for precision).
3. Align retirement tools
Use the same real vs nominal convention in every calculator.
Nominal vs real
Nominal wins headlines; real wins accurate purchasing-power planning.
- Nominal: Statement returns; loan rates quoted; easier to compare products.
- Real: Purchasing power preserved; essential for 20+ year goals.
Use our calculators
Common mistakes
- Using 10% nominal in retirement models without inflation
- Ignoring fees after inflation
FAQ
Are TIPS returns real?
TIPS principal adjusts with CPI—quoted yields are often real before taxes.