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.

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