More generally, Asher Rogovy, chief investment officer at Magnifina, suggests that it’s best to avoid nominal assets in favor of real assets when inflation’s on the upswing. Real assets, like stocks and real estate, have prices that fluctuate or vary freely. Nominal assets, like CDs and traditional bonds, are priced based on the fixed interest they pay and will lose value in inflationary times.
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In an inflationary environment, it’s best to avoid nominal assets in favor of real assets. Nominal assets, such as CDs and bonds, are priced based on fixed cashflows. Therefore, they have a limited upside which doesn’t fully protect against inflation. Real assets, such as stocks and real estate, have prices which may vary feely. If prices rise across the economy, real assets should hold their relative value. In other words, nominal assets have fixed numbers (such as an interest rate) built into the instrument, while real assets are priced entirely by the market.
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