Your Net WorthGlossary
Real return
Real return is the investment gain after accounting for inflation, showing the change in actual purchasing power.
A 5% nominal return with 3% inflation is roughly a 2% real return. Your money grew, but only by 2% in terms of what it can buy.
Real return is what matters for long-term goals. A pension projection in nominal pounds can look impressive while quietly promising a poorer lifestyle than you expect.
The shortcut calculation is: real return = (1 + nominal return) / (1 + inflation) - 1. For small numbers, subtracting inflation is close enough. For larger numbers or longer periods, use the full formula.