Real vs. Nominal Return
Nominal return is the raw percentage gain; real return subtracts inflation to show actual purchasing-power growth.
A nominal return is the headline number — "the market returned 8% this year." A real return adjusts that number for inflation, showing how much purchasing power actually grew. When inflation is high, the gap between the two can be large; a "good" nominal return can still be a mediocre or even negative real return.
Worked Example
An investment returning 6% nominally in a year with 4% inflation only grew purchasing power by roughly 2% in real terms — the other 4 points just kept pace with rising prices.
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