How to Invest: Are you Vulnerable to Inflation Risk?

by Monday, September 29, 2014

How to Invest: Are you Vulnerable to Inflation Risk?

Personal Investments can lose value short, and long term.
Companies assets are devalued, when bought and sold
Government Policy can increase the rate of inflation

Over the years, investments can lose their value if the money invested in them losing their purchasing power. Inflation risk is particularly dangerous because there is no way to avoid it, because money itself loses purchasing power.

Watch-FED-interview-on-inflation

Fed’s Fisher Comments on Policy, Inflation, US Dollar It is the risk caused by the unexpected rise in production costs due to the inflationary process. The essence of inflation as an economic category is the growth of prices for goods, works and services, which reduces the purchasing power of money in the economy. This kind of risk can be applied especially on large damage long-term investments, such as investments in shares and bonds.

What is Inflation Risk, and how does it affect you?

Individuals and legal entities with investment portfolios advised to actively manage their investments to avoid the problems associated with the inflationary risk. Moreover, this type of risk is useful to consider the short and long term.

It is the risk caused by the unexpected rise in production costs due to the inflationary process. The essence of inflation as an economic category is the growth of prices for goods, works and services, which reduces the purchasing power of money in the economy.

Investments can lose their value if the money invested in them losing their purchasing power.

This kind of risk can be applied especially on large damage long-term investments, such as investments in shares and bonds. Inflation risk is particularly dangerous because there is no way to avoid it, because money itself loses purchasing power, regardless of whether or not they have invested.

Individuals and legal entities with investment portfolios advised to actively manage their investments to avoid the problems associated with the inflationary risk. Moreover, this type of risk is useful to consider the short and long term. Inflation is a characteristic of most of the economies, but in the short term, its negative impact is insignificant, and that the investor has received considerable losses during 1-2 years. In the long term the situation may look completely different. Under the influence of money market factors it may increase their purchasing (this process is called deflation), which is likely to lead to an increase in the value of shares and bonds. Therefore, the impact factor of inflation in the long run may not be as devastating as it is in the short.

Inflation is a characteristic of most of the economies, but in the short term, its negative impact is insignificant, and that the investor has received considerable losses during 1-2 years. In the long term the situation may look completely different.

Under the influence of money market factors it may increase their purchasing (this process is called deflation), which is likely to lead to an increase in the value of shares and bonds. Therefore, the impact factor of inflation in the long run may not be as devastating as it is in the short.

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