Nominal returns instead of after-inflation returns

Investment projections that are shown in nominal (pre-inflation) returns may give an impressions of earning a higher return than if shown in today’s dollar value.

When the return is shown in today’s dollars (i.e. valued at today’s dollar value), or Net Present Value (NPV), it may actually be a lot less.

Here is a projection of the ASX All Ords Accumulation Index in nominal and real terms for 1980 - 2006:

Here is the real return after inflation, which puts the product performance in a proper perspective.

During the period 1980 – 2006, what was an impressive average compound return of 15.3% p.a. pre-inflation, reduces to 9.3% p.a. when inflation is removed.

A 40% reduction in "wealth" would make a big difference in long-term projections!

Its best to clarify with your financial planner whether a long-term projection shows the real after inflation return (Net Present Value or NPV).