Inflation-Adjusted Return

Investment return after subtracting the effect of inflation.

Inflation-adjusted, or real, return measures how much an investment grew in actual purchasing power after stripping out inflation. A 7 percent nominal return with 3 percent inflation is roughly a 4 percent real return. It is the figure that truly matters for long-term wealth.

A 7% gain felt smaller after inflation; his inflation-adjusted return was closer to 4%.