Reaalituotto

Reaalituotto, or real return, is the return on an investment after adjusting for inflation. It expresses how much purchasing power the investment has gained or lost over a given period, rather than the nominal amount of money earned.

Real return is typically calculated using the Fisher equation. The exact formula is R_real = (1 + R_nominal) / (1 + π) − 1, where R_nominal is the observed nominal return over the period and π is the inflation rate during the same period. For small rates, a common approximation is R_real ≈ R_nominal − π. The calculation can be applied to any time horizon and to portfolios with multiple assets by aggregating nominal returns and inflation appropriately.

Important considerations include the choice of price index (for example, consumer price indices such as CPI or harmonized indices like HICP) and the currency in which the return is measured. Inflation can vary by country, region, and even over time, and currency movements can affect real returns for international investments. Taxes can also affect real returns, since nominal gains may be taxed differently than inflation adjustments.

Applications of real return analysis include comparing performance across assets and periods, planning for long-term goals such as retirement, and evaluating the burden inflation places on investment strategies. Limitations include potential inaccuracies in inflation measurement, the need to align the inflation index with the investor’s consumption basket, and the fact that real returns do not guarantee future performance and can be negative even when nominal returns are positive.

See also: Fisher equation, real interest rate, inflation-indexed securities, nominal return, risk-adjusted return.