How to Invest When Interest Rates Are Rising
For novice and seasoned investors, “interest rates hiking” produces a familiar sense of foreboding. Somewhere in our minds, we have been conditioned to believe that rising interest rates spell doom for the stock market, crushing its ability to deliver favorable returns.
However, this is far from the whole story. An increase in interest rates is only one factor affecting the market, and astute investors can use this shift to their advantage. Below, we will explore strategies to help you navigate the investment landscape when interest rates are rising.
Invest In Hard Assets
When interest rates rise, bond prices typically fall, leading investors to question their investment’s value. This is the perfect scenario to invest in hard assets – tangible items such as real estate, gold, or art.
The performance of these assets tends to be independent of interest rates, unlike bonds that have to measure up with the present returns in the market. Investing in hard assets can provide a good hedge against the decline in bond prices and robust returns in the long term.
Look At Inverse Funds
When investors know interest rates will rise, they often shift their portfolios toward cash and bonds. As a result, the stock market may fall. Therefore, when interest rates rise, inverse funds become a particularly beneficial investment option.
As the name suggests, an inverse fund moves in the opposite direction of the equity markets and can deliver substantial returns if the stock price falls. This investment instrument can provide a good hedge as interest rates increase and conventional stocks decline.
Consider Floating Rate Bonds
Though conventional bonds typically do not perform well in the rising interest rate environment, floating-rate bonds are a safe bet. These bonds are pegged to a specific benchmark interest rate and are adjusted periodically.
This means their yields adjust higher if interest rates increase, providing suitable returns per market conditions. Floating-rate bonds have less interest rate risk and, in most cases, provide returns on par with bank deposit rates with slightly more risk.
Invest In Energy and Utilities
Utilities, energy, and other essential service companies are seemingly unconnected to the interest rate cycle. However, these companies tend to outperform comparatively during a rising interest rate era.
One primary reason is that they deal with basic human necessities that people still need to use, regardless of the economic phase. These industries typically provide reliable cash flows, stable dividends, and predictable earnings growth, which makes them highly desirable investments.
Globalization has made it easier to diversify your investment portfolio internationally. When interest rates rise in your home country, it does not mean that other countries are passing through the same phase.
International markets can provide more extensive opportunities and tend to operate independently of your local market’s performance, which means disappointing situations in your home market may not affect the international market. It is always necessary to be cautious when entering a foreign market since it comes with an added level of risk.
More in Business & Investments
The Dangers of Relying on a Single Income Source
Living off a single income can present various challenges and disadvantages for individuals and families. While there are certain situations where...July 14, 2023
How Do Mutual Funds Work?
Investing money is essential to financial planning, and mutual funds are among the most popular investment options. Many investors prefer mutual...July 7, 2023
6 Creative Tips to Get the Special Treatment on Your Flight
Traveling can be stressful. But there is nothing like getting special treatment on your flight to make you feel like a...June 29, 2023
Ken Jennings: Career, Fame and Success
Ken Jennings is an American game show contestant, author, and television host who gained fame for his record-breaking 74-game winning streak...June 20, 2023
Simple Financial Tips Every Start-Up Should Know
Starting a business can be a thrilling and rewarding experience, but it can also be financially challenging. Managing cash flow and...June 14, 2023
Smart Ways to Invest Your Tax Refund in 2023
As tax season approaches, you’re likely considering how best to use your hard-earned refund. While it may be tempting to spend the...June 7, 2023
The Importance of a Financial Plan
A financial plan is a comprehensive document that outlines an individual’s or organization’s financial goals and strategies to achieve them. It...June 2, 2023
Some Untold Ways Of Staying Friends With Your Exes
Breaking up with someone you were once in love with can be one of the most challenging experiences one can go...May 23, 2023
Mistakes to Avoid While Managing Your Money
Managing money is essential to our lives, and making mistakes can have serious consequences. People make many mistakes when managing their...May 16, 2023