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Updated 2mo ago.
Updated 2mo ago.
Real return is the return on your investment after subtracting inflation. It's the true gain in purchasing power. An 8% return with 3% inflation gives a real return of roughly 5%.
If your VEQT.TO portfolio returned 10% this year and Canadian inflation was 3%, your real return is about 7%. That means your purchasing power actually grew by 7%. Conversely, a savings account at 2.5% with 3% inflation gives you a real return of -0.5% — you're losing purchasing power.
Nominal return (before inflation) can be misleading. A GIC at 4% sounds good, but if inflation is 3.5%, you're only gaining 0.5% in real purchasing power. That's why stocks, despite their volatility, are essential for long-term goals — they're historically the best way to beat inflation.