Short answer
Nominal return shows how the money amount grows. Real return also accounts for inflation and describes purchasing-power growth. Approximately real equals nominal less inflation; exactly, growth factors are divided.
Important variables
- Nominal return
- Inflation assumption
- Fees and tax
- Period
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Worked example
6% nominal with 2.5% inflation gives about 3.4% exact real return before fees and tax: 1.06 ÷ 1.025 − 1.
Break-even: What changes the result?
Higher inflation reduces real purchasing power. Fees and tax further reduce the net return relevant to the investor.
Common mistakes
- Reading nominal future value as current purchasing power
- Applying percentage points linearly over long periods
- Not separating fees from return
Terms in this guide
Sources & assumptions
- European Central Bank — Nominal and real interest rates (2026-08-17)
- RATIOXA — Methodology and formulas (2026-08-17)
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