Nominal gains are not always real gains
If an investment earns 5% in a year while living costs rise 4%, account value increases but purchasing power improves only modestly. The return after inflation is the real return; the displayed 5% is the nominal return.
Real return = (1 + nominal return) ÷ (1 + inflation rate) − 1.
Subtracting inflation is a reasonable small-number approximation, but division is the correct compounded calculation.
Line one: CPI—did purchasing power hold up?
US CPI measures changes in a basket of consumer prices. It is a useful common reference for whether investment return kept pace with general living costs, but it is not anyone’s complete personal budget. Housing, healthcare, education and spending patterns vary, and asset prices are not the same as CPI.
Line two: Treasury yields—was risk compensated?
Treasury yields are a reference hurdle for dollar capital with low credit risk. If a risky equity strategy earns little more than a comparable yield over time, it is reasonable to ask whether the volatility and concentration were adequately compensated.
Treasury yields are not inflation: they incorporate expected inflation, real rates, term premium and other market demands. CPI measures realized consumer-price change, so the two should not be substituted for each other.
For investors who live in another currency, exchange rates and conversion costs matter too. A dollar return is not automatically a home-currency purchasing-power return.
Line three: the market benchmark
Active investors can also compare results with a broad index. In Rates & Purchasing Power, review CPI and 2Y/10Y/30Y yields; in My Performance, use TWR to organize records with cash flows. These are review tools, not investment advice.