Inflation slowly erodes purchasing power: a given dollar buys less over time when prices rise. Investors care about real return (return after inflation) because it shows how much your purchasing power actually grows. A nominal return is the headline percentage before adjusting for inflation; the real return adjusts using the formula (1 + nominal) / (1 + inflation) − 1. Knowing how to convert nominal to real helps you compare investments and set realistic goals for retirement or long-term savings.