Definition of Inflation Risk
What is Inflation Risk
Inflation risk is the risk or probability of loss in purchasing power because the value of the investment does not keep up with the rate of inflation. Inflation erodes the purchasing power of money over time, which means the same amount of money will buy less of a good in the future.
This type of risk is particularly relevant to fixed-income investments, such as bonds, as a fixed rate of return will become less valuable each year with rising inflation. Variable-rate securities offer some protection against inflation as their rate will adjust periodically based on indices.
Glossary of Terms and Phrases
A financial dictionary or glossary is an essential tool to better understand the meaning of a specialized term or phrase. It would obviously make life much easier if everyone spoke the same language and used the same financial terms and phrases but that is not realistic.
We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.