Two people can hold the exact same investment and, honestly, have made very different amounts of money. The reason is usually currency. Here is what nominal and real return mean, why the gap between them can be huge, and how to see your own true number.
Nominal return is the number you usually see
Nominal return is the change in an investment's value, measured in the currency the asset trades in. Buy a stock at 100 and it is worth 150 today, and you are up 50 percent. That figure is real and useful, but it quietly assumes the currency it is priced in has not moved against yours. Often it has.
Real return is what you actually got
Real return is the gain measured in your own currency, and strictly speaking after inflation too. Two things can pull it away from the nominal number:
- The exchange rate. If the asset is priced in a currency that fell against yours, some or all of your gain disappears when you bring it home.
- Inflation. Even in one currency, a gain that lags rising prices leaves you able to buy less than before.
Why currency can flip a gain into a loss
A concrete example. Say you put 12,000 lira into an investment in early 2022, and today it is worth 30,000 lira. In lira, you are up 150 percent, which looks excellent. But over that same period the lira fell sharply against the US dollar. Convert what you put in at the exchange rate on the day you invested, and convert today's value at today's rate, and in dollars you are actually down around 25 percent. Same investment, same holding period, and the honest answer flips from a big gain to a real loss, purely because of the currency.
You can work this out for your own investment in a few seconds: enter what you put in, when, and what it is worth now, and see the nominal return, the currency effect, and your real return side by side.
Inflation, in one line
Even without a currency change, a 5 percent gain in a year when prices rose 6 percent is a real loss of about 1 percent. Nominal flatters; real tells the truth about your buying power.
How to work it out
The method is simple, but the detail matters: convert the amount you invested at the exchange rate on the day you invested, and convert today's value at today's rate, then compare the two in your currency. The mistake most tools make is converting everything at today's rate, which quietly erases the currency effect and shows a number that never happened.
How StockFly does it for you
StockFly values every historical cash flow at the exchange rate on its own date, across your whole portfolio. So your cost basis, your gains, and your dividends are the real figures, shown in whatever currency you think in, without you doing a single conversion by hand.
This is general information, not investment advice.