The Federal Reserve has been gradually increasing interest rates over the past few years, and there’s no sign of that stopping anytime soon. This can be good news for savers, but it can also be bad news for investors. If you’re not careful, an interest rate hike can eat into your investment returns. But don’t worry, there are plenty of strategies you can use to protect your portfolio. In this blog post, we’ll go over six of them.
1. Keep your cash in a high yield savings account
As interest rates begin to rise, it’s important to review your investment strategy. One way to protect your investments is to keep your cash in a high yield savings account.
A high yield savings account is a great way to protect your money while still earning interest on your balance. Many banks offer high yield savings accounts with competitive interest rates. And, unlike other investments, you won’t have to worry about the value of your account fluctuating due to market conditions.
If you’re looking for a safe place to park your cash, a high yield savings account is a great option. Be sure to shop around for the best rate and terms for your needs.
2. Ladder CDs to maximize interest earnings
When the Federal Reserve raises interest rates, it’s generally good news for savers. Similar to savings account, laddering CDs can actually benefit from the rate hikes.
Here’s how it works: When you ladder CDs, you take your total investment amount and divide it into several smaller investments, each with a different maturity date. For example, you might invest $5,000 in five CDs with $1,000 in each CD and maturity dates of one year, two years, three years, four years, and five years.
As each CD matures, you can either reinvest the money into a new CD at the current interest rate or withdraw the money and use it however you’d like.
If you Ladder CDs with fixed terms and interest rates, when rates go up your future earnings potential also goes up. That’s because as each CD matures and you reinvest it into a new one, you’ll be able to lock in the higher interest rate. And since your original investment is still earning interest at the old, lower rate, you’ll be earning more overall.
Of course, there is risk involved any time you invest your money. If interest rates go down instead of up after you’ve invested in a ladder of CDs, then you may not come out ahead. But if you Ladder CDs wisely and keep an eye on market trends, then laddering can be a great way to maximize your earnings potential during a time of rising interest rates
3. Buy bonds
When the Federal Reserve begins to raise interest rates, as it’s currently doing, many investors worry about what will happen to their portfolios.
One strategy that can be used during an interest rate hike is to buy bonds. Bonds are not as sensitive to interest rate changes as other investments, such as stocks. This means that when rates go up, the price of bonds generally goes down less than the price of stocks.
4. Stay the course with stocks
Despite the recent interest rate hike, there is no reason to abandon stocks as an investment. The trick is to track a few stocks that you like, and get in when the price drops to a good buy-in point. Stock prices are likely to fall in the short-term, but over the long-term, stocks are still a good investment and will likely outperform other investments, such as bonds.
5. Consider real estate
Now that interest rates are on the rise, many investors are wondering what the best strategy is for their portfolios. One option to consider is real estate.
There are a number of reasons why real estate can be a good investment during an interest rate hike. For one, as rates go up, the cost of borrowing money to buy property also goes up. This makes properties more affordable for cash buyers and gives them a better chance to negotiate a lower price.
In addition, as rates rise, the value of income-producing properties such as rental properties and commercial real estate tends to go up as well. This is because these types of properties provide a higher return on investment when interest rates are high.
Finally, another benefit of investing in real estate during an interest rate hike is that it can help diversify your portfolio. This is important because if one asset class starts to perform poorly, having investments in other asset classes can help offset any losses.
If you’re thinking about investing in real estate during the current interest rate hike, be sure to do your research and talk to a financial advisor to get the most out of your investment.
6. Review your investment goals
Investment strategies during an interest rate hike can vary depending on your investment goals. For example, if you are saving for retirement, you may want to consider investing in stocks and bonds that have a history of outperforming during periods of rising interest rates. On the other hand, if you are trying to maximize short-term growth, you may want to focus on investments that are less sensitive to changes in interest rates. Regardless of your investment goals, it is important to review them periodically and make sure that your portfolio is still aligned with your long-term objectives.
These 6 investment strategies are somehow conservative but safe to consider during an interest rate hike. There are a variety of options available to you depending on your goals and risk tolerance. So take some time to review your options and make the best decision for your portfolio.