Real return: how much actually remained

The portfolio grew, so the investment worked. That holds until the growth is compared with the change in prices over the same period.

Nominal and real

Nominal return is the change in the amount in the account. Real return is the change in what that amount can buy. The first always looks better than the second, and the first is what gets displayed everywhere.

A rough calculation

Subtracting annual inflation from the annual return is enough. The exact formula accounts for the fact that return and price growth multiply rather than add, but for an estimate that difference is immaterial — unlike the difference between doing the calculation and not doing it.

Why official inflation diverges from the felt kind

The consumer price index is calculated on a fixed basket of goods and services with defined weights. Your personal basket is different.

{{figure:inflation-basket|caption=Your personal inflation differs from the official figure by exactly as much as your spending differs from the basket}}

Someone who drives a lot feels fuel prices more keenly than their weight in the index implies. Someone renting a home feels rents. Both figures are correct; they simply answer different questions.

What protects

Inflation-linked instruments are a separate class, covered in Inflation-protected bonds: how the principal is restated. Shares protect indirectly: a business passes rising costs into prices, but neither instantly nor always.

On the mechanism the central bank uses to manage inflation, see The key rate: how a Bank of Russia decision reaches your portfolio.