Inflation hedge
{{Short description|Investment intended to protect an investor against inflation or hedge}}
An inflation hedge is an investment intended to protect the investor against—hedge—a decrease in the purchasing power of money—inflation. There is no investment known to be a successful hedge in all inflationary environments, just as there is no asset class guaranteed to increase in value in non-inflationary times.{{cite news |last1=Navin |first1=John |date=15 September 2022 |title=Inflation Hedge: Not Stocks, Not Bonds, Not Crypto, Not Precious Metals |url=https://www.forbes.com/sites/johnnavin/2022/09/15/inflation-hedge-not-stocks-not-bonds-not-crypto-not-precious-metals/?sh=7ee7c39e760a |work=Forbes |access-date=6 December 2022 }} Conventional strategies for protecting wealth from inflation normally involve diversification into traditional assets like common stocks, gold, fixed-income securities, and real estate, but new strategies have value-generating assets like solar photovoltaics.{{Cite journal |last1=Sadat |first1=Seyyed Ali |last2=Mittal |first2=Kashish |last3=Pearce |first3=Joshua M. |date=January 2025 |title=Using Investments in Solar Photovoltaics as Inflation Hedges |journal=Energies |language=en |volume=18 |issue=4 |pages=890 |doi=10.3390/en18040890 |doi-access=free |issn=1996-1073}}
Overview
Inflation can impact investment decisions by making it difficult to predict future prices. This makes it risky to invest in certain assets, such as commodities, that may be impacted by inflation.
Inflation can erode the value of investments over time. This is why it is important for investors to consider inflation when making investment decisions.{{Cite web |last=Wilson |first=John |date=2022-11-23 |title=Macroeconomic Indicators For Investment Decisions |url=https://cleverbanker.ca/important-macroeconomic-indicators-investment-decisions/ |access-date=2022-11-30 |website=Clever Banker |language=en-CA}}
Barron's Finance & Investment Handbook states: "Traditionally, gold and real estate have a reputation as good inflation hedges, though growth in stocks also can offset inflation in the long run. Money market funds, which pay higher yields as interest rates rise during inflation times, can also be a good inflation hedge."John Downes & Jordan Elliot Goodman, Barron's Finance & Investment Handbook (6th ed.: Barron's Educational Series, 2003), p. 496.
Certain cryptocurrencies like Bitcoin{{cite web |last1=Rosen |first1=Phil |title=Ethereum is outperforming bitcoin because its a technology bet rather than a bet on inflation, says crypto bull Mike Novogratz |url=https://www.msn.com/en-us/money/markets/ethereum-is-outperforming-bitcoin-because-its-a-technology-bet-rather-than-a-bet-on-inflation-says-crypto-bull-mike-novogratz/ar-AARCalg |website=www.msn.com/ |publisher=msn |access-date=8 December 2021}}{{cite web |last1=Brockman |first1=Katie |title=Is Bitcoin a Good Inflation Hedge? |url=https://www.fool.com/investing/2021/11/15/is-bitcoin-a-good-inflation-hedge/ |website=www.fool.com/ |date=15 November 2021 |publisher=The Motley Fool |access-date=8 December 2021}} are sometimes considered a modern "digital gold" and an alternative hedge against inflation to the more traditional gold, yet performed very poorly during the 2021–2022 inflation surge.{{cite web |last1=Locke |first1=Taylor |title=Bitcoin isn't an inflation hedge, and it hasn't been for a long time, Bank of America says |url=https://fortune.com/2022/05/06/bitcoin-isnt-inflation-hedge-gold-bank-of-america/ |website=Fortune |access-date=29 July 2022 |language=en |archive-date=29 July 2022 |archive-url=https://web.archive.org/web/20220729113206/https://fortune.com/2022/05/06/bitcoin-isnt-inflation-hedge-gold-bank-of-america/ |url-status=dead }}
Silver is also considered by some to be a hedge against inflation.{{cite web |last1=Partsinevelos |first1=Kristina |title=Redditors eye silver as hedge against inflation |url=https://www.cnbc.com/video/2021/07/12/redditors-eye-silver-as-hedge-against-inflation.html |website=www.cnbc.com/ |date=12 July 2021 |publisher=CNBC |access-date=8 December 2021}}
Platinum, once considered to be a more speculative metal for investors, has turned out in the 2020s to be a metal seen as a hedge against inflation similar or superior to gold, silver, or Bitcoin.{{cite web |last1=Creamer |first1=Martin |title=Many seeing platinum as hard asset, potential inflation hedge – WPIC |url=https://www.miningweekly.com/article/many-seeing-platinum-as-hard-asset-potential-inflation-hedge-wpic-2022-01-24 |website=www.miningweekly.com |publisher=Creamer Media Mining Weekly |access-date=8 March 2022}}{{cite web |title=Gold vs. Platinum: Which Is A Better Investment? |url=https://finance.yahoo.com/news/gold-vs-platinum-better-investment-164119737.html |website=finance.yahoo.com |date=11 February 2020 |publisher=Yahoo Finance |access-date=8 March 2022}}