Methodology · reviewed
Real return
A real return is what an investment gained once rising prices are taken out. If a fund grew 50% while prices in the shops rose 25%, the extra spending power is 20%, not 50%.
The formula
real = (1 + return) ÷ (1 + CPIH inflation over the same months) − 1
CPIH inflation is the ratio of the ONS CPIH index (series L522, 2015 = 100) at the end and start of the period.
Worked example
A fund returns +50% over five years. The CPIH index rose from 120 to 150, so inflation was +25%. Real return = 1.50 ÷ 1.25 − 1 = +20%.
How it is done
For reported returns (see "Where the returns come from"), the period is the latest CPIH month published and the same month 1, 3 or 5 years earlier. CPIH is published about a month after the month it measures, so the inflation period ends about a month before the return period — the usual convention.
For returns we calculate from our own price record, inflation is measured between the CPIH months on or before the first and last price dates.
We use CPIH because the ONS names it its lead measure of inflation; it includes owner-occupiers’ housing costs, which CPI leaves out.
Limits to know about
- Inflation is an average across the UK. Your own costs can rise faster or slower.
- Returns are before any platform fees, dealing costs or tax, which depend on where and how you hold the fund.
Sources
- ONS CPIH index L522 (Open Government Licence v3.0)
Reviewed . If a figure on the site does not follow this method, tell us. This is information, not advice.