What are the different ways of inflation affects investment?

Inflation affects the investment negatively negatively, but there are significant exceptions. Inflation is a constant increase in the costs of goods and services. In other words, inflation is the loss of the value of the currency - which forces prices to rise in response. The consensus among economists is that inflation is the result of too much money persecution too few goods. This basic imbalance forces the price of most commodities higher, which means that people who have invested in their ownership have a net profit. Cash itself can be an investment if one decides to maintain it rather than invest in other assets. Holding cash as a repository of value becomes a poor investment when inflation disrupts its purchasing power. However, this tendency can be complicated by the type of business in which the corporation is connected. Many businesses lose sale when inflation forces them to increase their prices. Other businesses can normally maintain ownership of inventories or other assets that are increasing in the price due to inflation. Shares as a class have tEndence to increase the price due to inflation, but the individual stocks are less predictable.

bonds and other debt tools have their own inflation dynamics. Investors who lend money receive bonds together with a note or certificate of bonds. The greater the risk that the creditor perceives on such a loan, the more interest the creditor will demand. One of these risks is the inflation rate expected throughout the life of the loan. After lending inflation money, it affects investment in debt by reducing the purchasing power of the interest and there is no relief to be promoted by selling debt - its value moves down as inflation rises.

Another investment class, precious metals, is often promoted as a hedge against inflation, because as a commodity of a limited offer, its price should rise because the currency loses its value. Although it is true, other factors have an impact. Gold and silver do not create any interest andNi dividends, so in the inflation environment they try to maintain its suitability compared to stocks.

The main problem in determining how inflation affects investment is to compare performance using the decreasing value of the inflated currency. This creates a type of double moving goal. The solution is to accept that the impact of inflation is variable.