Glossary
Real Return
A real return is an investment's return after subtracting inflation — the growth in actual purchasing power rather than in dollars.
An 8% return during 3% inflation is roughly a 5% real return; a 4% return during 6% inflation is a loss of purchasing power despite the positive number. Long-run planning assumptions are more honest in real terms, because retirement will be paid for in future prices, not today's.
Why it matters in practice
Real return is the figure that decides whether savings are actually growing. Cash and low-yield deposits frequently deliver negative real returns for years at a time — the balance rises while its buying power falls — which is the quiet cost of excessive "safety" over long horizons. Historically, broad stock portfolios have produced meaningfully positive real returns over long periods, which is the fundamental case for owning them despite their volatility.
Related terms: Inflation · Compound Interest · Yield · Time Horizon