Final answer:
True, inflation can outpace the return on investments, causing them to lose real value. As inflation rises, it erodes the purchasing power of money held in investments like savings accounts if the interest earned is less than the inflation rate.
Step-by-step explanation:
True, during inflationary times, there is indeed a risk that the financial return on an investment will not keep up with the rate of inflation. When inflation occurs, the buying power of cash and equivalent financial assets decreases, meaning that investments earning a nominal return that is less than the inflation rate are effectively losing real value.
For instance, if someone has funds in a savings account earning 4% interest but the rate of inflation rises to 5%, the real rate of return on that investment would be negative 1%. This illustrates how inflation erodes purchasing power and impacts savings and investment decisions, especially problematic when the rate of inflation exceeds the interest received on assets.