| Definition |
An asset or strategy used to protect against the declining purchasing power of money due to rising prices. |
An asset or strategy used to protect against falling prices and economic slowdown. |
| Economic Scenario |
Used during inflationary periods when prices are rising and currency is losing value. |
Used during deflationary periods when prices are falling and cash gains value. |
| Main Goal |
Preserve or grow wealth despite rising costs of goods and services. |
Protect capital and maintain purchasing power during economic contraction. |
| Popular Assets |
Gold, real estate, commodities, TIPS (Treasury Inflation-Protected Securities), stocks. |
Cash, high-quality government bonds, long-term treasuries, defensive stocks. |
| Risk Behavior |
Assets may carry higher market risk but outperform during inflation. |
Assets are usually lower risk and offer stability during downturns. |
| Returns |
Typically provide positive real returns in high inflation environments. |
Focus on capital preservation with low or steady returns in deflation. |
| Liquidity Preference |
Lower preference for cash; it loses value. |
Higher preference for cash; it gains value. |
| Interest Rate Impact |
Often coincides with rising interest rates. |
Often coincides with falling or near-zero interest rates. |
| Stock Market Behavior |
Certain sectors like energy, commodities, and real estate may perform well. |
Defensive sectors like healthcare and consumer staples may perform better. |
| Investment Strategy |
Focus on tangible and appreciating assets. |
Focus on preserving capital and minimizing loss. |
| Examples |
Buying gold during high inflation, investing in TIPS or property. |
Holding cash or U.S. Treasury bonds during recessions or deflationary slumps. |
| Effect on Debt |
Debt becomes cheaper in real terms. |
Debt becomes more expensive in real terms due to increased value of money. |
| Currency Preference |
Shift away from fiat currencies to hard assets. |
Higher demand for strong, stable fiat currencies. |
| Investor Sentiment |
Favors growth and value preservation through real assets. |
Favors safety, liquidity, and capital protection. |
Inflation Hedge vs Deflation Hedge