// REAL RETURN CALCULATOR

Real Return Calculator

Calculate the real return — the part of a nominal return that actually beats inflation.

// INPUTS

NOMINAL ANNUAL RETURN (%)

INFLATION RATE (% / year)

// OUTPUT

REAL RETURN (FISHER)

5.66%

QUICK ESTIMATE (NOMINAL − INFLATION)6.00%

// FORMULA

RealReturn = (1 + Nominal) / (1 + Inflation) − 1

The Fisher equation. Subtracting (nominal − inflation) is only an approximation.

// EXAMPLE

// WORKED OUT

12% nominal return with 6% inflation:
  Real = (1.12 / 1.06) − 1
       = 1.0566 − 1
       = 5.66% per year
Quick estimate: 12 − 6 = 6%

// WHAT THIS MEANS

A return is only as good as what it lets you buy. A 12% nominal return when inflation is 10% is much weaker than a 7% return when inflation is 3%. The Fisher equation gives the exact real return; subtracting inflation gives you a close-enough number for headline math but drifts at higher rates.