Inflation Hedge

DEFINITION of 'Inflation Hedge'

An investment that is considered to provide protection against the decreased value of a currency. An inflation hedge typically involves investing in an asset that is expected to maintain or increase its value over a specified period of time. Alternatively, the hedge could involve taking a higher position in assets which may decrease in value less rapidly than the value of the currency.

BREAKING DOWN 'Inflation Hedge'

Certain investments might seem like a decent return, but when inflation is factored in they can actually be sold at a loss. For example if you invest in a stock that gives a 5% return, but inflation is 6%, you are actually losing buying power. Assets which are considered an inflation hedge could be self fulfilling; investors flock to them, which keeps their values high even though the intrinsic value may be much lower. Gold is widely considered an inflationary hedge.

RELATED TERMS
  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Downside Protection

    The use of an option or other hedging instrument in order to ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  5. Perfect Hedge

    A position undertaken by an investor that would eliminate the ...
  6. Nonrenewable Resource

    A resource of economic value that cannot be readily replaced ...
Related Articles
  1. Retirement

    Top 5 Fidelity Funds for Retirement Diversification in 2016

    Learn how five top funds from Fidelity can be allocated to create a diversified retirement portfolio for generating lifetime income.
  2. Retirement

    Looking to Add Oil Into Your IRA or Roth IRA? Here's How

    Learn the different ways investors can gain exposure to the price of oil and oil companies in their IRAs. See how individual oil stocks can be risky.
  3. Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  4. Bonds & Fixed Income

    Coping With Inflation Risk

    Inflation is less dramatic than a crash, but it can be more devastating to your portfolio.
  5. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  6. Economics

    What Is Wrong With Gold?

    Despite its historic and symbolic appeal, this metal is simply a commodity. Here we explore its meaning as an investment.
  7. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  8. Economics

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  9. Investing Basics

    How To Prepare For Rising Interest Rates

    Get to know the basic, time-tested strategies that any investor or trader can use to profit in a rising interest rate environment.
  10. Options & Futures

    Fight Back Against Inflation

    Inflation is often a consequence of economic recovery. Here's how you can protect your financial portfolio.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What is comparative advantage?

    Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it ... Read Full Answer >>
  3. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  4. How does the Wall Street Journal prime rate forecast work?

    The prime rate forecast is also known as the consensus prime rate, or the average prime rate defined by the Wall Street Journal ... Read Full Answer >>
  5. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  6. How does a cost-of-living adjustment (COLA) affect my salary?

    Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees. ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center