Real rate of return — definition
Real rate of return is investment return after accounting for inflation. A key indicator for evaluating true investment profitability.
What is real rate of return?
Real rate of return is investment profit adjusted for inflation. It tells you how much you actually earned in terms of purchasing power — not in nominal PLN.
Formula
Real rate of return ≈ Nominal rate of return − Inflation
Exact Fisher formula:
(1 + nominal) / (1 + inflation) − 1
Example
- Your deposit yields 6% annually (nominal rate)
- Inflation is 4%
- Real rate of return ≈ 6% − 4% = 2%
More precisely: (1.06 / 1.04) − 1 = 1.92%
Why is this important?
Nominal gains can be deceptive. A 6% deposit with 7% inflation means you're losing 1% purchasing power annually — despite nominally "earning".
Historical context (Poland)
| Year | Deposit interest rate | Inflation | Real return |
|---|---|---|---|
| 2021 | 0.5% | 5.1% | −4.6% |
| 2022 | 4% | 14.4% | −10.4% |
| 2023 | 6% | 11.4% | −5.4% |
| 2024 | 5.5% | 3.7% | +1.8% |
During 2021-2023, savings in deposits lost real value despite positive interest rates.
Real rate and different asset classes
| Asset | Typical nominal rate | Real (at 4% inflation) |
|---|---|---|
| Savings account | 5% | 1% |
| EDO bonds | inflation + 1% | 1% |
| Global ETF (long-term) | 8-10% | 4-6% |
| Real estate | 6-8% | 2-4% |
How Freenance can help
Freenance shows both nominal and real returns from your portfolio. You see the true picture — whether your investments beat inflation or just create an illusion of profit.
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