# Saving, investing, speculating and the real return

> How saving, investing and speculating differ, and how to turn a nominal return into a real one after inflation and devaluation.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: What can an investing app honestly promise?
- Lesson 1/32, ~24 min
- Source: https://productovi.com/courses/long-term-investing/saving-investing-speculating

## Where you work

**Alex Tutor:** Welcome to Zapas, a Kyiv-founded fintech start-up of about 30 people. Its app helps people invest regularly for the long run: pick a goal, set a monthly amount, get a ready portfolio of broad index funds. It's in closed beta with 2,400 users and launches publicly in November 2027.

**Alex Tutor:** It's February, and you've just joined the core team as the product manager. Over this course you'll take the app to launch: what it may promise, how much users can lose, costs, portfolios and behavior. Today: Ethan's new landing page and the number on it.

## Three ways to put money aside

**Ethan:** Welcome aboard! Look at the hero line I wrote: "Grow your money 12% a year." Short, bold, true. Can we ship it this week?

**Grace:** Before we argue about the number, let's agree what the app does. Picture three products Zapas could build. Only one of them is ours.

**Grace:** A cash pocket for goals a few years away is **saving**: the money stays safe and close. The goal portfolio, a monthly amount into funds that own a share of many companies' profits or lend to them, held five years or more, is **investing**. A "hot coins" tab, where users bet that someone will pay more soon, is **speculating**.

![Saving keeps money safe for short goals, investing owns a share of business profits for 5+ years, speculating bets on the next price and can lose everything.](https://productovi.com/courses/long-term-investing/diagrams/m1-l1-three-ways.png)

*Only investing earns because businesses earn.*

**Sofia:** So the emergency cushion stays a saving, not part of the app.

**Grace:** Right. Zapas starts where the cushion is already built. Day trading and hot coins are speculation; there's a separate course on [trading vs investing](/courses/trading/trading-vs-investing) if you're curious.

> **Exercise:** Match each beta user's plan with what it really is.

## Nominal and real

**Grace:** Now your 12%, Ethan. That's a **nominal return**: how many more dollars you have. But prices rise too. What matters is the **real return**: how much more you can buy.

$$
r_{\text{real}} = \frac{1 + r_{\text{nominal}}}{1 + \text{inflation}} - 1
$$

*Real return from a nominal return and inflation*

**Ethan:** Isn't it just 12 minus inflation?

**Grace:** Close for small numbers, not exact. With 3% inflation, 12 − 3 gives 9%, but the exact answer is a bit lower. Work it out.

> **Exercise:** A fund returned 12% in a year when inflation was 3%. What was its real return, in percent, to one decimal?

**Grace:** And 12% isn't what our own synthetic history shows either. Over 40 years the Tessaro World index averaged 9.3% nominal, which is 5.9% real after 3.2% inflation.

**Average real return a year, 40 synthetic years of Tessaro**

| asset | Real return a year |
| --- | --- |
| World stocks | 5.9 |
| Long bonds | 1.8 |
| Short bonds | 1.4 |
| Cash rate | 0.2 |

*Geometric average, after inflation. Synthetic data, not a forecast.*

**Dataset (CSV):** [Tessaro market, 40 synthetic years (nominal %, inflation %)](https://productovi.com/datasets/long-term-investing/saving-investing-speculating/market_history.csv)

> **Exercise:** In the synthetic 40-year Tessaro history, what did world stocks return a year after inflation?

## Your goal is in hryvnias

**Sofia:** Our users live in Ukraine. Does the same maths work for hryvnias?

**Grace:** Same formula, bigger numbers. A hryvnia deposit at 14% with 10% inflation sounds great, but in real terms it earns 3.6%.

**Ethan:** Fine, but we sell dollar funds. A falling hryvnia helps us, right?

**Grace:** It adds to the hryvnia return, yes. A fund earning 7% in dollars while the dollar gets 5% dearer gives 1.07 × 1.05 − 1 = 12.4% in hryvnias. Then take away hryvnia inflation, say 10%, and only 2.1% is real.

> **Exercise:** Which line should the app show a user with a hryvnia deposit at 14% while inflation is 10%?

> **Exercise:** A fund earns 7% in dollars in a year when the dollar gets 5% more expensive in hryvnias. What is the return in hryvnias, in percent, to one decimal?

## Cash is not as safe as it looks

**Grace:** Inflation also works on money that does nothing. A 100,000 UAH cushion kept in cash for five years at 10% inflation buys about as much as 62,092 does today.

> **Exercise:** A family keeps 100,000 UAH in cash for 5 years while inflation is 10% a year. What is it worth in today's money, in UAH, to the nearest hryvnia?

**Ethan:** OK, OK. 12% is nominal, a single number, and higher than our own data. What do I write instead?

**Grace:** That's the module's last lesson. For now, explain it in a message he can forward.

> **Exercise:** Ethan wants the landing page to say "Grow your money 12% a year". In 2–3 sentences, explain to him what is wrong with the number, using nominal vs real return and the Tessaro data.

> **Key ideas**
>
> - **Saving** is for money needed within a few years, **investing** owns profits for 5+ years, **speculating** bets on the next buyer.
> - Real return = (1 + nominal) ÷ (1 + inflation) − 1. 12% at 3% inflation is 8.7%.
> - In synthetic Tessaro data, world stocks averaged 9.3% nominal, 5.9% real a year over 40 years; cash only 0.2% real.
> - For hryvnia goals, the dollar rate multiplies the return and hryvnia inflation takes it back: 7% and 5% give 12.4% in hryvnias, 2.1% real at 10% inflation.
> - Cash loses buying power quietly: 100,000 UAH at 10% inflation is worth 62,092 after 5 years.

> **Educational, not advice**
>
> This course explains how long-term investing works; it never tells you what to buy. Investments can fall, and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

**Grace:** Tomorrow: the "goal + monthly amount" screen. You'll see why the years matter more than the rate.

- Next lesson: [Compounding with a monthly amount: time beats the rate](https://productovi.com/courses/long-term-investing/compounding-monthly.md)

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