What is an inflation risk?

Inflation occurs when the prices of goods and services are rising, which reduces the purchasing power of money in the economy. If there is an inflation risk, there is a chance that inflation may be higher than economists and financial analysts. This type of risk may be particularly harmful to long -term investments such as stocks and bonds. The investment may lose value for years if money into the investment loses its purchasing power. The inflation risk is particularly dangerous because there is no way to avoid it because the money itself loses value, even if they do not invest in risk shares.

Individuals and investment portfoli companies are often recommended that they are cleverly invested to avoid inflation risk problems. It may be useful to look at this type of risk in terms of short and long -term risk. Inflation often occurs in most economies, which means that short -term inflation is often small and inevitable and generally causes only aakcia or bonds forloss of yields per year or two. However, as soon as they regain their purchasing power, they can increase the values ​​of shares or bonds, which means that long -term inflation is not nearly as harmful as short -term inflation.

Investment in commodities is sometimes recommended to investors as a good way to avoid inflation risk. Commodities are materials such as oils and metals that are commonly purchased by industries. During inflation, it increases the value of these commodities, which means that investment in these commodities can generate revenues higher than stocks and bonds in capital markets. However, other experts believe that counting on commodity investment may also be dangerous because they are not worth unless they are purchased. Some experts also assume that inflation caused by higher costs of some commodities may end in a reduction in the value of other commodities.

Factors series like JSOU political unrest and lack of resources can lead to a high degree of inflation risk. In some cases, inflation psychology is the cause of inflation. It is a phenomenon in which consumers invest in precious metal and commodity markets such as oil and gold because they are afraid of inflation. By collecting money from the capital markets of stocks, bonds and other long -term assets, they eventually create inflation that they try to avoid by increasing the value of commodities and reducing the purchasing power of their money.