Real Return & Inflation-Adjusted Investment Calculator
Calculate real investment returns after inflation. Find the true purchasing power growth of your savings and investments — the number that actually matters.
Real Returns and Inflation Guide
Real vs Nominal Returns
Nominal return: the stated percentage return before inflation adjustment. Real return: the Fisher equation: (1 + real) = (1 + nominal) / (1 + inflation). Simplified: real return ≈ nominal − inflation. Example: savings account at 4.5% with 3.5% inflation: real return ≈ 1%. You are barely keeping up with inflation. £10,000 grows to £14,500 nominally but the real purchasing power increase is only about £1,000 in today's money. The real return is the only figure that tells you whether you are actual
Inflation and Cash Savings
Cash held without investing is destroyed by inflation at the full inflation rate. £10,000 in cash at 3% inflation for 20 years: real value = £10,000 / 1.03²⁰ = £5,537. You still have £10,000 but can only buy what £5,537 would buy today. This is why saving in cash alone is a wealth-destroying strategy over long periods. The Bank of England's 2% inflation target means £1 today should be worth approximately 67p in 20 years — this is considered a healthy, stable economy. Hyperinflation (Zimbabwe 200
Long-Run Real Returns by Asset Class
Historical real returns (UK, long-run averages after inflation): equities (UK stock market): approximately 5-7% real per year. Global equities: 5-6% real. UK residential property: 2-3% real (including rental income, excluding costs). Index-linked gilts: 0-1% real. Cash/savings accounts: 0-1% real (sometimes negative in high inflation periods). This is why long-term investors allocate heavily to equities — the equity risk premium (return above inflation) has historically been substantial. Short-t
Sequence of Returns Risk
The order of returns matters for investors drawing down funds in retirement. Two investors both average 5% real return but one experiences losses early, one late. The investor suffering early losses has a much worse outcome because losses early compound the damage — there is less capital remaining to benefit from subsequent gains. This sequence of returns risk explains why a 100% equity portfolio can be dangerous in the years immediately before and after retirement. The sequence risk is also why
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