Inflation and Real Returns

What matters is not how many dollars you have, but what they can buy. Here is how inflation erodes money, how to calculate a real return and which assets have held up best against rising prices.

Nominal vs. real

A nominal return is the percentage your money grew. A real return subtracts inflation, showing how much more you can actually buy. If your investment earned 7% while prices rose 3%, your real return was roughly 4%. In 2022, when U.S. inflation peaked at 9.1% year over year in June, savings earning 1% lost about 8% of their buying power that year.

Inflation shrinks what the same number of dollars can buy.

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