Chapter 3 · Open anytime · free play from 1966
Nominal vs real return
Nominal is how much your money grows in dollars; real is how much it grows after inflation, which is what you can actually buy.
The idea
In short
- 1Nominal is how much your money grows in dollars; real is how much it grows after inflation, which is what you can actually buy.
- 2How to read a table of historical returns: nominal or real? Average (arithmetic) or compound (geometric, CAGR)? With dividends and costs? Which period? Starting or ending in a particular year changes the result a lot.
- 3Arithmetic vs geometric: +50% then −50% averages 0%, but you have 25% less.
In the data
What history shows
US stocks in dollars and in purchasing power, 1928–1949
Real data, January 1928 to December 1949: years before any mission, so nothing is given away. Monthly returns from Robert Shiller and Aswath Damodaran.
Real figures
The numbers
Finish missions 2 and 5 to see these real figures.
Remember
Takeaways
- Always look at the real column.
3 more takeaways unlock as you finish more missions.
Practice, not scored
Quiz
1. 10% nominal with 8% inflation: what is the exact real return?
2. A fund says “+80% in 10 years”. Which three questions should you ask?
Finish missions 2 and 5 to see this question.