Real Return

Definition

Real return is the inflation-adjusted return that reflects change in purchasing power rather than just nominal balances.

Formula

Real return ~ (1 + nominal return) / (1 + inflation) - 1

Example

If nominal return is 8% and inflation is 3%, real return is about 4.85%.

How to use it

• Real return is the right metric for long-term purchasing power.
• When inflation is high, nominal gains can hide flat real outcomes.
• Use the same period basis for return and inflation assumptions.
• Model real return for retirement or long-term planning, not just nominal growth.
• Compare real return to your spending growth, not just market benchmarks.
• Stress test real return with low-return, high-inflation scenarios.

Common mistakes

• Comparing nominal returns to real targets.
• Using monthly inflation with annual return rates without conversion.
• Ignoring taxes, which further reduce real purchasing power.

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

• Write a 1-line definition for "Real Return" that your team will use consistently.
• Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
• Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
• Use a calculator that references this term (e.g., Real Return (Inflation-adjusted) Calculator) to sanity-check assumptions.
• Read the related guide (e.g., Real vs nominal return: inflation-adjusted performance) for context and common pitfalls.

Where to use this on MetricKit