How it works
For a single period, real return equals (1 + nominal return) / (1 + inflation) − 1. Use decimal rates and identical start and end dates. Subtracting inflation from return is a convenient approximation, but division gives the exact relationship under these assumptions.
First establish what the nominal number includes. A price return excludes distributions; a total return includes them under a stated reinvestment convention. Fees and taxes can reduce either result. Deflating an incomplete return does not make the measurement complete, so label those choices before calculating.
Worked example
Suppose 10,000 currency units become 10,800 without contributions or withdrawals, while a matching consumer basket rises from 100 to 105. Nominal return is 8%; real return is 1.08 / 1.05 − 1 = 2.86%. The final balance buys what approximately 10,285.71 units bought initially. Simply subtracting 5% gives 3%, slightly overstating the gain.
Interpretation and limits
A consumer price index represents a specified population and basket, not every household's experience. Housing, education or imported purchases may move differently. Monthly inflation must not be compared directly with an annual return. Over several years, chain the growth factors rather than adding annual percentages; negative real returns remain possible with positive nominal gains.
Chart practice
Choose two available closed monthly bars and record their dates and price change. Treat that as a nominal price observation. Obtain the matching inflation index separately and document distributions and adjustments before drawing purchasing-power conclusions. Student Wyckoff Pro supports chart analysis; this exercise does not imply an inflation-adjusted account or portfolio calculator.
Primary sources
Sources explain the mechanics and limitations; the editorial examples use invented numbers rather than market quotations.
Your next practical step
Continue with analysis of available closed daily, weekly and monthly bars.
Open the first-chart instructions ↗