The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results.

Inflation risk, also referred to as purchasing power risk, is the risk that inflation will undermine the real value of cash flows made from an investment. 

Inflation risk definition

Inflation risk, also referred to as purchasing power risk, is the risk that inflation will undermine the real value of cash flows made from an investment.

Inflation risk can be seen clearly with fixed-income investments. If you buy a bond with a coupon rate of 3%, then this would be the nominal return of your investment. However, if the inflation rate is at 2%, your purchasing power is only really increasing by 1%.

 

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