Dodge Incoming Interest Rate Hikes With These Smart Investment Strategies

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On the heels of this morning’s disappointing jobs report — and with inflation surging near 7% over the year — the central bank has also signaled it will make aggressive monetary policy moves as the nation moves into 2022.

See: Inflation Fighting: The Best (and Worst) Things To Buy Each Month To Save Money
Find: American Retail Spending Could Raise Inflation as COVID Outbreak Leads to Less Dining Out

Per CNBC, policy makers are moving towards three rate increases in 2022 and two more in 2023 as inflation concerns deepen. The Fed and its representatives took a mostly hawkish stance on inflationary pressures in 2021, calling inflation transitory for the better part of the year and largely excusing its upwards trajectory as an unfortunate side effect of the pandemic. As the pandemic continues, however, and new variants threaten economic recovery, inflation has largely been accepted as a problem that needs to be dealt with sooner rather than later. 

As interest rate hikes threaten to destabilize markets, here are some moves to consider making before your portfolio takes the hit.

Avoid Long-Term Bonds

Treasury bonds will lose value over time if their yield is lower than the current rate of inflation. The 10-Year Treasury note, an internationally utilized benchmark, is currently hovering around 1.62%. Short-term bonds and bond funds are a better bet to hold in your portfolio until interest rates go up, as these instruments will be less risky in a high-rate environment.

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Of course, shorter term bonds and bond funds will produce lower yields, but are a hedge against uncertain rate and market conditions. Make sure to rebalance once things stabilize.

Related: US Junk Bonds See Sharp Selloff as Omicron Variant Has Investors Worried

Buy, Hold Stocks Which Offer Dividends

Companies that pay dividends to stockholders are typically larger and pose a less risky investment as compared to more mercurial stock picks. Companies like Target and McDonald’s are among the so-called “dividend aristocrat” group of companies — large and established enough to be surer bets in uncertain investing environments.

Invest in Financial Sector, Utilities, Health Care

Financial stocks tend to do better when interest rates rise, and it could be a good idea to add a few to your portfolio before the expected rate hikes. Utilities and health care are also two sectors that typically perform well during high interest rate periods. Over the last two years, health care stocks have performed well on their own and are poised to outperform the broader market in 2022.

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Learn: Fed Chair Powell: Inflation Is ‘Reason Behind’ Raising Interest Rates — Will It Have Significant Economic Impact?
Explore: How Much Will the Fed Raising Interest Rates Affect You?

Refinance if You’re Able

If you’re able to refinance, it’s best to take advantage of historically low interest rates now while you still have the chance. Everyone’s specific situation will determine whether or not refinancing makes sense. For example, if you are not planning on staying in your current home for that long, it might not be worth the effort or cost.

Speak to your bank to see if your goals align with the opportunity to lock in lower rates while you can. Refinancing is a great way to save money in the long run, but should only be done if needed — not to chase interest rates.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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