Valuation
Nominal vs Real Returns
The number on the statement is nominal. Wealth is what that number still buys.
The figure on a statement is nominal. Wealth is the basket of goods and services that figure still commands.
Nominal return
Percentage change unadjusted for inflation or tax. Useful for tracking a portfolio. Useless as a living-standard score.
Real return
Nominal minus inflation (Fisher approximation: real ≈ nominal − inflation). The Compound Engine reports both ending balance and real purchasing power.
Takeaway
Cash earning 4% in 2.5% inflation is not ‘safe’. It is a slow real leak. Model it before you park a decade of runway in a current account.
Run the numbers