DEFINITION of 'Real Rate Of Return'
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.
INVESTOPEDIA EXPLAINS '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.

Pretax Rate Of Return
The rate of return on an investment that does not take the taxes ... 
Nominal
An unadjusted rate, value or change in value. This type of measure ... 
Equity Premium Puzzle  EPP
An phenomenon that describes the anomalously higher historical ... 
Return
The gain or loss of a security in a particular period. The return ... 
InflationAdjusted Return
A measure of return that accounts for the return period's inflation ... 
Deflation
A general decline in prices, often caused by a reduction in the ...

Retirement
Combating Retirement's Silent Killer: Inflation
Inflation can devour a once secure nest egg. Learn how to protect yours. 
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. 
Economics
Why The Consumer Price Index Is Controversial
Find out why economists are torn about how to calculate inflation. 
Bonds & Fixed Income
Curbing The Effects Of Inflation
Your investments suffer when general price levels rise. Learn how you can control the damage with IPSs. 
Economics
What You Should Know About Inflation
Find out how this figure relates to your investment portfolio. 
Bonds & Fixed Income
Equity Premiums: Looking Back And Looking Ahead
If stocks become less profitable in the future, you may have to change your investment strategy. 
Investing Basics
Five Successful Investing Strategies
The secret to investing is that there is no secret. Success is all about knowing yourself, getting the basics and using both to make the right choices. 
Investing
Will 2015 Finally Be The Year For Rising Rates?
Interest rates continued declining in 2014, but as we enter 2015 many investors are asking the same question: Will 2015 be the year for rising rates? 
Economics
Is the consumer price index (CPI) the best measure of inflation?
Discover how the CPI is one of the most used indexes to measure inflation, but due to its limitations, the PPI and GDP deflator are also required. 
Economics
Can state and local governments in the US run fiscal deficits?
Discover why most state and local governments do not – or cannot – run fiscal deficits in the same manner as the U.S. federal government.