What are nominal returns?

When investing, it’s important to look at the whole picture. You need to consider inflation in your overall returns and factor it into your investment decisions. This infographic lays out the types of returns as well as the effect inflation can have on different types of investments.

Investing expectations

Nominal returns

This is the yield or return on the investment before accounting for inflation. For example, if a bond yields 2% the nominal return would be 2%.

Real returns

Simply put, it’s the nominal return minus inflation. For example, a bond with a nominal return of 2% and inflation of 2.4% has a real return of ‑0.4%.

What is inflation?

General increase in the price of goods and services over time. This reduces your purchasing power.

Key takeaway

Make sure you are looking at the whole picture by factoring in inflation to your investment decisions.