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It might seem obvious that using real returns is
superior for decision-making to using nominal returns.
After all, spending power at maturity is what investment
is about. In some cases, however, we are trying to cover
a liability that is not inflation-linked, as in most
defined-benefit pension plans. Or, when comparing to a
benchmark, so long as we are consistent, it does not
matter whether we are using real or nominal returns.
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