Real assets can provide inflation protection from "summary" of Institutional Investment Management by Frank J. Fabozzi
Real assets, such as real estate, infrastructure, and commodities, have the potential to provide investors with protection against inflation. This is because the value of real assets tends to rise in periods of inflation, as the prices of goods and services increase. In contrast, the value of financial assets, such as stocks and bonds, may erode in real terms during periods of high inflation. One reason real assets can provide inflation protection is that they often have pricing power. For example, real estate owners can raise rents in response to inflation, while infrastructure projects may benefit from increased demand for their services. Commodities, such as oil and gold, tend to see their prices rise during inflationary periods, providing a hedge against rising prices. Another factor that contributes to the inflation protection provided by real assets is their tangible nature. Unlike financial assets, which represent claims on future cash flows, real assets have intrinsic value that is not tied to the performance of the broader economy. This can make them a valuable addition to a diversified investment portfolio, particularly in times of high inflation. Furthermore, real assets can act as a store of value in inflationary environments. While the purchasing power of financial assets may diminish during periods of rising prices, real assets can retain their value or even appreciate. This can help investors preserve their wealth and maintain their standard of living over the long term.- Real assets have the potential to provide investors with protection against inflation due to their pricing power, tangible nature, and ability to act as a store of value. By incorporating real assets into their investment portfolios, institutional investors can better position themselves to weather periods of high inflation and preserve their wealth over time.
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