What is a 'Real Rate Of Return'
A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time.
BREAKING DOWN 'Real Rate Of Return'
Adjusting the nominal return to compensate for factors such as inflation allows investors to determine how much of their nominal return is actually real return.
For example, let's say your bank pays you interest of 5% per year on the funds in your savings account. If the inflation rate is currently 3% per year, then the real return on your savings today would be 2%. In other words, even though the nominal rate of return on your savings is 5%, the real rate of return is only 2%, which means that the real value of your savings only increases by 2% during a oneyear period.

Nominal Interest Rate
The interest rate before taking inflation into account. The equation ... 
Nominal Rate Of Return
The amount of money generated by an investment before expenses ... 
AfterTax Real Rate Of Return
The actual financial benefit of an investment after accounting ... 
Nominal Value
The stated value of an issued security. Nominal value in economics ... 
InflationProtected Security  ...
A type of fixedincome investment that guarantees a real rate ... 
Real Value
Nominal value adjusted for inflation. Real value is obtained ...

Term
What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Economics
Understanding Interest Rates: Nominal, Real And Effective
Interest rates can be broken down into several subcategories that incorporate various factors such as inflation. Smart investors know to look beyond the nominal or coupon rate of a bond or loan ... 
Retirement
Inflation: Inflation And Investments
When it comes to inflation, the question on many investors' minds is: "How will it affect my investments?" This is an especially important issue for people living on a fixed income, such as retirees. ... 
Investing Basics
What is a Nominal Value?
The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. 
Economics
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Economics
The International Fisher Effect: An Introduction
The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates. 
Professionals
How To Measure Returns On The Series 65 Exam
An investor who is evaluating the performance of a portfolio manager must take into consideration the impact that any contributions or withdrawals made by the investor will have on the overall ... 
Investing Basics
How Inflation Policy Affects You
The Fed estimates a longterm goal of 2% inflation for the near future. Learn how that'll impact you. 
Investing Basics
Calculating Annualized Total Return
The annualized total return is the average return of an investment each year over a given time period. 
Investing Basics
Inflation's Impact On Stock Returns
When stocks are divided into growth and value categories, the evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods ...

What is the difference between real and nominal interest rates?
Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >> 
How do nominal interest rates in finance differ from the nominal rate of interest ...
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How does the Fisher effect illustrate returns on bonds?
Learn how the Fisher effect shows the impact of expected future increases in inflation on the prices of bonds and their interest ... Read Answer >> 
Under what circumstances is the nominal value out of line with the real value of ...
Learn more about nominal stock values and market values. Explore causes of differences between nominal and real values for ... Read Answer >> 
How can you calculate the difference between nominal value and real value of stock ...
Explore the impact of real value and nominal value on stock trading. Find out how these values are assigned and what causes ... Read Answer >> 
What can cause the rate of return to be negative?
Learn how poor company or sector performance, economic turmoil and inflation can cause the rate of return on an investment ... Read Answer >>