What is the difference between nominal and real returns?

Nominal return is your headline gain. Real return is nominal return minus inflation, which reflects true purchasing-power growth.

Quick Definition

Nominal return is your raw percentage gain. Real return ≈ Nominal return − Inflation rate. If a fund returns 8% but inflation is 3%, your real gain is only ~5% in purchasing power.

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Inflation-adjusted Return

Nominal return vs purchasing-power return.

CAGR

Convert between annualized rate and final amount.

Compound Interest

Growth with recurring contributions and compounding frequency.

Related concepts

What is inflation and why does it matter?

Inflation is the rate at which prices rise over time, eroding purchasing power. Central banks typically target 2% annual inflation. High inflation hurts bond returns and raises borrowing costs.

What is dollar-cost averaging?

Dollar-cost averaging (DCA) means investing a fixed sum at regular intervals regardless of price. You buy more shares when prices are low and fewer when high, naturally lowering your average cost.