Guide · Concept

Nominal vs. real return

Last updated June 4, 2026 · ~5 min read

A 'real' return subtracts inflation from a 'nominal' return. It is the difference between how many dollars you end up with and what those dollars can actually buy — and over a span of years, that difference is large.

The two definitions

Nominal return is the headline percentage gain measured in dollars — the number nearly every calculator, including this one, reports by default.

Real return adjusts that for inflation. A quick approximation is 'nominal minus the inflation rate'; the precise version is (1 + nominal) ÷ (1 + inflation) − 1.

Why it matters

Cash kept 'under the mattress' has a 0% nominal return — but a negative real one, because prices rise over time. Across the early 2020s, cumulative US inflation ran well into the double digits, so a dollar from 2020 buys noticeably less today.

This is why, on our comparison tables, cash holds its face value but its real purchasing power has actually fallen.

A worked example

Suppose an investment rose 30% in nominal terms over a period in which prices rose 20% cumulatively. In real terms you didn't gain 30% — you gained roughly (1.30 ÷ 1.20) − 1 ≈ 8%. Still positive, but a long way from the headline.

How this affects 'what if' results

Our figures are nominal, which is the standard for these tools, and we value cash at face value. So when you read a long-ago result, mentally apply a haircut for inflation — and the further back the entry date, the bigger that haircut should be.

The takeaway: a big nominal return over many years is worth less than it looks. Real return is the number that tells you whether you actually got richer in purchasing power.

FAQ

Are your figures nominal or real?

Nominal. We report the dollar-based return and do not subtract inflation, which is the convention for 'what if I'd invested' calculators.

Why doesn't cash lose value in your comparison table?

We show cash at face value — the same number of dollars. In real terms its purchasing power fell with inflation, which the table notes but does not subtract.

This guide is educational and is not financial advice. See our terms & disclaimer.

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