The real return is the rate of return on an investment after adjusting for inflation. It represents the actual purchasing power gained or lost over time. Unlike the nominal return, which only considers the raw percentage increase in value, the real return accounts for inflation’s impact on the investment’s true profitability.
For example, if an investment earns a 10% nominal return, but inflation is 3%, the real return would be approximately 7% (6.8%). Understanding real return is essential for investors, as it provides a clearer picture of an investment’s actual growth in purchasing power.
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