Real Return (Inflation-adjusted) Calculator
Convert nominal return into real return given an inflation rate (and compare the difference).
Nominal returns don't account for inflation. Real return measures how much purchasing power you gain after inflation.
This calculator converts nominal return to real return and shows the inflation drag.
Prefer an explanation- Read the guide.
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Tip: you can type commas (e.g., 10,000).
Example
Using the default inputs, the result is:
6.8%
- Nominal annual return
- 10%
- Inflation rate
- 3%
- Target real return (optional)
- 0%
How to calculate
- Enter nominal annual return and inflation rate.
- Review real return and the difference vs nominal.
Formula
Real return = (1 + nominal) / (1 + inflation) - 1
- Inflation rate is an approximation (e.g., CPI).
- Uses annual rates; use consistent units for inputs.
- Does not model taxes; real after-tax return can be lower.
FAQ
Why can real return be negative-
If inflation exceeds nominal return, your purchasing power declines even though your nominal balance grows.
Is real return the same as risk-adjusted return-
No. Real return adjusts for inflation. Risk-adjusted return accounts for volatility and risk (e.g., Sharpe ratio).
Common mistakes
- Ignoring inflation when comparing long-term returns.
- Using CPI inflation when your personal basket differs (approximation).
- Mixing monthly and annual rates (unit mismatch).
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Quick checks
- Use consistent time units (monthly vs annual) when entering rates and cash flows.
- Run a sensitivity check on the input that drives the result most (often discount rate or growth).
- Treat the output as a decision aid, not a prediction; validate assumptions with reality.