How Can Inflation Risk Affect Investment Decisions?
Inflation risk can significantly impact investment decisions. Investors must consider the real return on investments, which is the nominal return adjusted for inflation. High inflation can erode the value of fixed-income investments such as bonds, making them less attractive. On the other hand, investments in real assets like real estate or commodities may provide a hedge against inflation. Businesses must carefully assess the inflationary environment when making investment decisions to ensure they achieve their financial goals.