Definition of Inflation Hedge
What is the definition of an "inflation hedge"? What is meant by a hedge against inflation?
An "inflation hedge" is an investment that will typically rise in value during periods of above-average inflation.
For instance - gold is an inflation hedge, as gold typically rises in value during periods of time when there is above-average inflation.
Hard assets (investments with intrinsic value) such as oil, gold and farmland are typically great hedges against inflation.
Assets that are used to hedge against inflation (gold, oil, etc) are generally negatively correlated with stocks and bonds. In times of high inflation, stocks and bonds tend to suffer, while hard assets such as gold, oil and farmland tend to outperform.
Inflation has been ticking higher in the previous couple of years, so it should be no surprise to learn that assets such as oil and gold have performed remarkably during that time.
Leaving excess amounts of cash in low-yield accounts is ruinous during times of inflation, as your money is losing value very quickly (higher inflation means that the buying power of a dollar decreases). This is why people will own inflation hedges in order to protect their net worths.
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