Ch.10 · Benchmarks and Performance Evaluation · medium
What is 'inflation risk' (purchasing power risk) in the context of investments?
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EXPLANATION
Inflation risk is the risk that investment returns fail to outpace inflation, causing a loss in real (inflation-adjusted) purchasing power. For example, a 5% return when inflation is 6% means real wealth decreases by 1%. Equity funds historically provide inflation-beating returns over long periods, making them important for long-term wealth preservation.
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