Inflation Hedge
An investment that is expected to maintain or increase its value during periods of rising prices.
Definition
An inflation hedge is an investment that is expected to protect the investor's purchasing power during periods of rising prices. Effective inflation hedges include: real estate (property values and rents tend to rise with inflation), commodities (gold, oil, and agricultural products often increase in price during inflationary periods), TIPS (Treasury Inflation-Protected Securities, which adjust principal based on CPI), stocks (companies can raise prices to maintain profit margins), and I-Bonds (US savings bonds with inflation-adjusted interest rates). Historically, stocks have been the best long-term inflation hedge, returning approximately 7% annually after inflation. Cash and fixed-rate bonds are the worst performers during high inflation as their real value erodes.
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Related Terms
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power.
CommoditiesGold
A precious metal widely used as a store of value, inflation hedge, and safe-haven investment.
Real EstateREIT (Real Estate Investment Trust)
A company that owns, operates, or finances income-producing real estate and distributes most profits as dividends.
InvestingTreasury Bond
A long-term US government debt security with a maturity of 10 to 30 years.
MarketsCommodities
Raw materials or primary agricultural products that can be bought, sold, and traded.