Which describes a real investment return?

• A. Real return is achieved when the return has at least matched inflation over the investment term.
• B. Return is guaranteed.
• C. Positive but below inflation.
• D. Value has appreciated.

Answer: (A)

The main idea here is real return, which is the investment return after accounting for inflation. Real return measures how much your purchasing power actually grows. It’s calculated as the nominal (reported) return minus inflation. So if your investment earns a return that is at least equal to inflation, your real return is zero or positive, meaning you haven’t lost purchasing power and may have gained it.

That’s why the statement describing a real investment return is one where the return has at least matched inflation over the investment term. If returns are guaranteed, that’s not required for a real return and isn’t true in practice. A positive return that’s below inflation would still mean a negative real return, not a real gain. Simply saying the value has appreciated could reflect nominal gains without considering inflation, so it doesn’t necessarily indicate a positive real return.