Inflation refers to the general increase in prices over time, which reduces the purchasing power of money. While it's an important economic factor that impacts both consumers and investors, inflation is not a method for reducing investment risk. In fact, inflation introduces risk by eroding the value of cash holdings and fixed-income investments. To combat inflation, investors might seek assets like stocks, real estate, or Treasury Inflation-Protected Securities (TIPS), but these choices still require diversification to reduce broader portfolio risk. Inflation affects almost all investments, but it doesn’t help in balancing risk across different holdings. If you put all your money into one asset that underperforms during an inflationary period, you’re exposed to loss. Understanding inflation is crucial for long-term financial planning, but it should not be confused with diversification, which is the deliberate strategy of spreading investments to reduce risk from volatility and unexpected downturns.