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Inflation

Trading Term

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is a crucial factor to consider in investing, as it affects the real return on investments. For instance, if an investment yields a 5% return but inflation is 3%, the real return is only 2%. To hedge against inflation, investors often turn to assets like stocks, real estate, or commodities, which historically outpace inflation. Additionally, Treasury Inflation-Protected Securities (TIPS) are government bonds specifically designed to protect against inflation, as their principal value adjusts with the inflation rate, preserving purchasing power.

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