Real return calculator
Return after inflation, by the exact formula and by subtraction.
Fill in the fields and the result will appear here automatically.
Real return measures the annual change in an investment’s purchasing power by comparing money growth with price growth for the same year. A 12% return and 7% inflation give about 4.67% under the entered model, while subtraction gives 5%. Subtraction may overstate or understate the result; its absolute gap is shown separately. Nominal return here means annual balance growth before inflation adjustment, rather than a contractual APR with compounding frequency. Positive fractional years are used without rounding for the optional cash projection.
How it works
Formula and logic
Real return = [(1+n/100)/(1+p/100)−1]×100%, where n is annual balance growth and p annual inflation. The shortcut n−p is separate; the gap uses percentage points. For amount A and duration t: nominal balance = A(1+n/100)^t; purchasing power = A[(1+n/100)/(1+p/100)]^t. Inflation must exceed −100%, and return must be at least −100%; −100% means complete capital loss. Positive fractional years are not rounded. Amount 0 omits the money rows.
Example
A 12 percent rate with 7 percent inflation is a real 4.67 percent, not the 5 that subtraction suggests. Annual return 5% with inflation 9% gives −3.67%. For 100,000 at 12% and 7% over 1.5 years, purchasing power is 107,090.60 without rounding the duration.
Fields and units
- Annual return, % — unitless
- Inflation, % — unitless
- Amount — $
- Years — years
How to use
- — Enter the nominal rate you are offered.
- — Enter the inflation rate you expect.
- — Optionally add an amount and a term.
Method and limitations
- Calculation method
- Formula and logic
- Data or methodology source
- Eggertsson–Mehrotra, A Model of Secular Stagnation (2014): Fisher relation, equation 15 BLS, United States: purchasing power and the price-index ratio
- Limitation
- Constant annual rates and one balance, without deposits or withdrawals. Inflation must exceed −100% and return cannot be below −100%. Taxes, fees, contractual APR, exchange rates and future return forecasts are not calculated.
FAQ
Why not just subtract the rates?
Divide the annual balance factor by the price factor. With 12% and 7%, subtraction gives 5%, above the real 4.67%; with 5% and 9%, it gives−4%, below the real−3.67%. It is a low-rate approximation; the error’s direction and size depend on both rates.
Can the real return be negative?
Yes. The annual money factor is below the price factor, so purchasing power falls. The nominal balance may have grown, stayed unchanged or fallen; the real result’s sign alone does not determine that.
Which inflation figure should I use?
For a past year, use the change in an appropriate price index over that same year. For the future, enter an inflation and return scenario; both are assumptions. Constant rates do not reproduce a changing sequence of yearly returns and inflation.
Is tax taken into account?
Not automatically. Use a known annual return after the applicable taxes and fees when that is the comparison needed. Do not subtract a tax percentage directly from a return percentage: the tax base, thresholds and timing depend on the actual terms.