The Economy & the Fed

Real Return and Inflation Risk

A real return is what an investment earned after subtracting inflation, so it measures what your money can actually buy. The quick formula: real return ≈ nominal (stated) return − inflation rate. A savings account paying 4% while inflation runs at 3% gives a real return of about 1%; if inflation is 5%, the real return is negative even though the balance grew. The danger that rising prices eat away your returns is called inflation risk, or purchasing-power risk. It hits fixed payments hardest, such as long-term bonds and cash, while stocks, real estate and TIPS have historically held up better.

Educational information, not investment advice. See it applied across the screener →