To obtain higher returns one must accept more risk. B. Three basic investment philosophies - 1. Current income is not a consideration. Always compare after-tax investment yields as different investments have differing tax treatments. Investing entails placing money in some alternative investment hoping to obtain more money later.
Inflation erodes the value of money so the money received later is worth less.
The impact of inflation can be seen by subtracting the inflation rate from the yield on an investment. The real-return on an investment is the yield after inflation and taxes. A Many factors can affect the return on an investment and thus add to risk - inflation and deflation risk are associated with the impact of inflation on current income and asset value. Interest-rate risk is associated with changes in interest rates in the economy as a whole. Financial risk is associated with the possibility that the return expected will not be paid.