Real vs nominal revisited
Understand why inflation-adjusted hurdle rates: US investor needs 7% nominal for 4% real (at 3% inflation).
In this lesson
Real vs nominal revisited is part of Inflation-Proof Wealth. This preview shows how financial-independence connects to everyday family decisions such as earning, saving, spending choices, goals, approvals, or parent-guided money conversations inside Progress Penguin.
Think about this money choice
Imagine this situation: Investment A: 25% nominal return in a year with 20% inflation. Investment B: 15% nominal return in a year with 5% inflation.
How it works
Inflation-adjusted hurdle rates: US investor needs 7% nominal for 4% real (at 3% inflation). Nigerian investor needs 22%+ nominal for 4% real (at 18% inflation). Same real wealth gain, dramatically different nominal requirement. This is why Nigerian equity markets (historically 15-30% nominal returns) are necessary — not optional — for real wealth preservation.
Apply it to a real decision
Real-life money moment: You are evaluating two 10-year investments: A) Nigerian stock fund, 25% nominal annual return, 18% average inflation. B) UK stock fund (in pounds), 10% nominal annual return, 3% inflation, but currency risk. Calculate real returns for both and identify the key risk in each. — Equal real returns, different risks: both achieve 7% real annual return. But the risk sources differ: A is exposed to Nigerian market and currency; B is exposed to exchange rate movements. The rational diversification: hold some of both. Currency risk on B is partially managed by the naira depreciation trend (which tends to boost naira returns on pound-denominated assets over time).
Activity preview
Connect the ideas
Use the lesson to complete this short practice activity.
Quiz preview
If your investment returns 10% but inflation is 18%, real return is:
Investment A: 25% nominal return in a year with 20% inflation. Investment B: 15% nominal return in a year with 5% inflation. Which produced better real returns?