In portfolio construction, which approach helps preserve value when inflation is a concern?

• A. Real-return focus
• B. Fixed-income only
• C. Short-duration cash
• D. Neglect inflation

Answer: (A)

Inflation erodes purchasing power, so preserving value means aiming for real returns — returns that exceed inflation. A real-return focus evaluates investments by their expected nominal return after accounting for inflation, seeking assets whose growth is above the rising price level. This keeps the portfolio’s purchasing power over time. That’s why this approach is preferred when inflation is a concern: it targets actual growth in buying power rather than just nominal gains. Relying on cash or short-duration fixed income can keep nominal balances intact but often doesn’t outpace inflation, and neglecting inflation guarantees continued erosion of value. By focusing on real returns, you align the portfolio with the goal of maintaining purchasing power in an inflationary environment.