Real Rate of Return Calculator
Convert a nominal investment return into a real, inflation-adjusted return using the exact Fisher equation — the growth in actual buying power.
How it works
Real return = (1 + nominal) ÷ (1 + inflation) − 1 · Approximation: real ≈ nominal − inflation
A nominal return is the headline growth of your money, but inflation erodes what that money can actually buy. The Fisher equation adjusts for this exactly by dividing the growth factor by the inflation factor, giving the real return — the true increase in purchasing power. Simply subtracting inflation from the nominal return is a handy approximation, but it slightly overstates the real return, and the gap widens as both figures get larger.
Worked example
A 7% nominal return with 3% inflation gives a real return of (1.07 ÷ 1.03) − 1 = 3.88%, not the 4% the quick subtraction suggests. Over decades that ~0.12% difference compounds into a meaningful gap in real wealth.
Sources: Fisher equation — Wikipedia
Frequently asked questions
Why not just subtract inflation from my return?
The subtraction is a good rough guide but slightly overstates the real return, because inflation also erodes the gains themselves, not just the principal. The Fisher equation — dividing the growth factors — is exact, and the difference matters most at higher rates.
Can a real return be negative?
Yes. If inflation outpaces your nominal return, your buying power falls even though the account balance rose. A 3% return during 5% inflation is roughly a −1.9% real return — you lost ground in real terms.
Which inflation figure should I use?
Most people use a broad consumer price index (like the CPI) for the period held. Your personal inflation rate can differ if your spending is weighted toward faster- or slower-rising categories such as housing or healthcare.
Related calculators
Educational estimate, not investment advice. Markets involve risk of loss.