Inflation & Real Return Basics
Educational only — not financial advice. Updated 2025-11-12.
Plan in ‘real’ (after-inflation) terms. Inflation is a quiet headwind you can fight with productive assets, low costs, and discipline.
Nominal vs Real Returns
| Term | Meaning | Example |
|---|---|---|
| Nominal | Not adjusted for inflation | Portfolio grew 6% |
| Real | After inflation | Inflation 3% → real ~3% |
Inflation’s Quiet Tax
Inflation reduces purchasing power. A dollar that grows 4% with 3% inflation only gains ~1% in real terms.
ASCII: Purchasing Power Year 0 : ██████████████ Year 10: ████████ (with 3% inflation, flat nominal)
Protecting Real Wealth
- Own productive assets (equities) over long horizons.
- Keep costs and taxes low.
- Hold some cash/bonds for stability and liquidity.
Checklist
- Think in real terms for goals.
- Review your expected returns vs inflation.
- Prefer broad, low-cost ETFs.