A good year?

Watch both numbers.

You put ₹1,00,000 in a fixed deposit that pays **9% a year**. In the same year, prices rise **10%**.

Your statement says you gained ₹9,000. But the shopping your ₹1,00,000 used to buy now costs ₹1,10,000. Your money grew, and prices grew **faster**.

Two ways to measure a return

Switch between the two views.

The return the bank shows is the **nominal return**: how much the number grew. The return after inflation is the **real return**: how much more you can **buy**.

**The shortcut:** real return ≈ return − inflation. Here, 9% − 10% ≈ −1%.

Find where a gain turns into a loss

Move both sliders.

Set what your money earns and how fast prices rise. Watch for the point where green turns red.

**Remember:** a return is only a gain if it beats inflation.

The bigger number can be the worse deal

Switch between how it looks and what it buys.

Two years, two deposits. Which one would you rather have had?

This has happened for real. In the US in 1980, savers were glad to earn about 11% on bank deposits, yet they were losing money after inflation. By 2003 deposits paid only about 2%, and savers were keeping up.

Small gaps add up

Switch between the two deposits.

A 1% real loss looks tiny in one year. Leave the money for 20 years and the gap compounds, just like growth did in the last lesson.

Example rates, held steady for 20 years to show the idea.

Does anything reliably beat inflation?

Switch between the two views of history.

Shares are generally considered the investment most likely to beat inflation over long periods. US history shows how often that held, and when it didn't.

**Remember:** no investment beats inflation every time. Shares have done it more often than not over long periods, with bad stretches along the way.

US share returns and inflation, 1926 to 2002. Past results don't guarantee future ones.

Check — Question 3 of 4

Put each one where it belongs.

What you now know

• The nominal return is how much the number grew.
• The real return is how much more you can buy, after inflation.
• Shortcut: real return ≈ return − inflation.
• A return below inflation is a real loss, even when the number goes up.
• Small real gaps compound into big ones over many years.
• No investment beats inflation every time; shares have done it more often than not over long periods.