Inflation Risk
Definition
What is Inflation Risk?
The risk that investmentAn asset or commitment of money made with the expectation of future income, growth, or both. returns fail to preserve purchasing powerThe quantity of goods and services that a sum of money can buy. as prices rise.
Example in practice
How This Looks in Practice
A fund returns 12% while inflationA sustained increase in the general price level, reducing the purchasing power of money. is 18%, leaving a negative approximate real returnInvestment return after adjusting for inflation..
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Related Terms
Market Risk
The possibility of loss because broad market prices or rates move against an investment.
Risk TermsCredit Risk
The possibility that a borrower or issuer will fail to make promised payments or suffer a downgrade.
Risk TermsInterest-Rate Risk
The possibility that changing market interest rates will reduce an investment's value or income appeal.
MiscellaneousBusiness Day
A day on which relevant financial institutions and markets are open for normal processing.