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  • Inflation represents the gradual rise in prices over time. It results in a decrease in purchasing power.
  • A diversified portfolio of equities and bonds can help mitigate inflation risk.

Whether you’re saving for education, retirement or another long-term goal, it’s important to be aware of inflation risk – that is, the risk that inflation will erode the value of your investments over the long term. Here’s a guide to understanding the forces behind inflation, and how diversification can help you protect the value of your money.

Put simply, inflation is the general rise of the price of goods and services over time.

As inflation rises, your purchasing power decreases. This means that your money does not go as far or buy as many things as it did before prices rose. Inflation impacts all aspects of the economy – from consumer spending and business investments, to government policies and interest rates.

cost of a dozen eggs en

1. Source: Statscan, Bank of Canada. 2. Source: Statscan, Bank of Canada. 3. Calculated using projected annual inflation of 2%.
Equities tend to offer better protection against inflation. Company revenues, and therefore earnings, can outpace inflation over time. Over the last 20 years, equities have delivered returns approximately 6.6% higher than inflation.4 Diversification is key. For example, it can help to add exposure to companies with ties to commodities, real estate, or those with the ability to pass on price increases to their customers without impacting demand.
Fixed income investors are often enticed by the stable stream of income bonds provide. However, inflation and interest rates tend to move in the opposite direction from bond prices. When interest rates rise, it can reduce the value of your bond holdings. While inflation may impact areas of the bond market in the near term, bonds play an important role in diversified portfolios by providing stability against equity market volatility. Consider bonds with a variety of characteristics including: maturity, various risk levels, as well as sovereign and corporate bonds, both domestic and global.

Inflation can eat away at your investment returns, so it’s important for your wealth to grow at a faster rate. Fortunately, there are ways to mitigate the impact of inflation on your investments. Inflation is just one of the many economic forces that can affect your investments. The key is to choose investments carefully, with strategies to address inflation.

Inflation is just one of the many economic forces that can affect your investments. The key is to choose investments carefully, with strategies to address inflation.

Diversifying your portfolio can help minimize inflation risk. If you have questions about how inflation affects your investments, talk to your financial advisor.

 Source: Bloomberg, RBC GAM for 20-year Investment returns data as of May 29, 2026. For illustrative purposes only. Equities: S&P/TSX Composite TR Index. The indicated rates of return are the historical annual compounded total returns for the periods indicated including changes in unit value and reinvestment of all distributions. Index returns do not reflect deduction of expenses associated with investments. If such expenses were reflected, returns would be lower. An investment cannot be made directly in an index. Source: Bank of Canada for average inflation data as of May 29, 2026. Inflation is approximated by the change in Consumer Price Index (CPI) each month. The average CPI for the last 20 years is 2.2.

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Disclosure

Last updated: June 2026

This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information.