Real rate of return


Also found in: Acronyms.

Real rate of return

The percentage return on some investments that has been adjusted for inflation.

Real Rate of Return

The rate of return on an investment after adjusting for inflation. It is calculated simply by taking the gross return and subtracting the inflation rate. For example, if the return on an investment is 7% and the inflation rate is 4%, the real rate of return is 3%.

Real rate of return.

You find the real rate of return on an investment by subtracting the rate of inflation from the nominal, or named, rate of return.

For example, if you have a return of 6% on a bond in a period when inflation is averaging 2%, your real rate of return is 4%. But if inflation were 4%, your real rate of return would be only 2%.

Finding real rate of return is generally a calculation you have to do on your own. It isn't provided in annual reports, prospectuses, or other publications that report investment performance.

References in periodicals archive ?
The post war record suggests that the real rate of return on the kind of assets that private pension funds in the UK typically hold has been significantly in excess of real GDP growth and of the increase in aggregate real wages.
The unitized risk values for the real rate of return for the DJIA Index are indicated on the basis of the data presented in Table 1 and Figure 2.
The real rate of return (return minus consumer price inflation) was negative (see Price Trends).
Of the remaining 73, those who fared the best were, once again, entrepreneurs and investors, with an annual real rate of return of 5.
However, your real rate of return would have been negative.
Getting a positive real rate of return is effectively impossible for the proverbial widows and orphans.
Fixed-income securities, such as longterm bonds, that are often considered safe investments, may have a negative real rate of return after inflation.
1 percent real rate of return on their retirement savings at a time when other Canadians must accept a 1 percent guarantee if they seek one or, alternatively, must bear significant investment risks in pursuit of a 4.
The real rate of return to capital may have started to decline by the early 1970s; productivity growth certainly has slowed since then.
Using this approach, David Burgess and I concluded in a 2011 Journal of Benefit-Cost Analysis paper that public investment should pursue a 7 percent real rate of return (that is, the return after inflation)
The nominal rate of return to the asset minus the price change for the asset in the equation is referred to as the real rate of return to the asset.