Real Return (Inflation-Adjusted)
Calculate investment returns adjusted for inflation to see actual purchasing power growth with Google Sheets formulas.
=(1 + nominal_return) / (1 + inflation_rate) - 1 How It Works
Nominal returns show how much your money grew in dollar terms. Real returns show how much your purchasing power grew after accounting for inflation. A 10% return with 4% inflation is not the same as a 10% return with 2% inflation.
Syntax
=(1 + nominal_return) / (1 + inflation_rate) - 1Format result as percentage.
Example
Situation:
- Portfolio Return: 10%
- Inflation Rate: 3%
Formula: =(1 + 0.10) / (1 + 0.03) - 1
Result: 6.80% real return
Your purchasing power grew by 6.80%, not 10%.
Nominal vs Real Returns at Different Inflation Rates
| Nominal Return | 2% Inflation | 3% Inflation | 4% Inflation | 6% Inflation |
|---|---|---|---|---|
| 5% | 2.94% | 1.94% | 0.96% | -0.94% |
| 7% | 4.90% | 3.88% | 2.88% | 0.94% |
| 10% | 7.84% | 6.80% | 5.77% | 3.77% |
| 12% | 9.80% | 8.74% | 7.69% | 5.66% |
Worth noting - at high inflation, even decent nominal returns can mean almost zero real growth.
Variations
Quick Approximation
For a rough estimate, some people simply subtract:
=nominal_return - inflation_rateThis is close enough when both rates are small, but gets less accurate at higher values.
Multi-Year Real Return
To see real growth over several years:
=((1 + nominal_return) / (1 + inflation_rate))^years - 1Setting Up a Real Return Calculator
| A | B |
|---|---|
| Nominal Return | 10% |
| Inflation Rate | 3% |
| Real Return | =(1+B1)/(1+B2)-1 |
| Quick Estimate | =B1-B2 |
| Investment Value | $100,000 |
| Years | 10 |
| Nominal Future Value | =B6*(1+B1)^B7 |
| Real Future Value | =B6*(1+B3)^B7 |
Pro Tips
-
Use the Fisher equation - the division method above (Fisher equation) is more accurate than simple subtraction
-
Historical averages - U.S. stocks have returned roughly 7% real over long periods, useful as a planning baseline
-
Bonds and cash often underperform inflation - worth checking whether “safe” holdings are actually losing purchasing power
-
Compare investments in real terms - a 5% bond during 2% inflation beats an 8% stock return during 6% inflation in real terms
Common Errors
- Using subtraction instead of division -
nominal - inflationoverstates real return, especially at higher rates - Ignoring inflation entirely - long-term projections without inflation adjustment can be very misleading
- Mixing time periods - make sure nominal return and inflation cover the same period (both annual, both monthly)