Discover more from Mazdak
5 best investments during high interest rates
Interest rates are rising, and that means it's time to rethink your investment strategy. When interest rates rise, the value of existing bonds declines, and stocks can become more volatile. However, there are still a number of investments that can perform well in a high interest rate environment.
In this blog post, we will discuss the five best investments during high interest rates. These investments offer a variety of risk-return profiles, so you can choose the ones that are right for your financial situation and investment goals.
1. Short-term bonds
Short-term bonds are less sensitive to interest rate changes than long-term bonds, making them a good choice for investors looking to preserve their capital. Short-term bonds typically have maturities of one to five years.
One way to invest in short-term bonds is through a short-term bond ETF. A short-term bond ETF is a basket of bonds that all have maturities within a certain number of years. For example, the iShares Short-Term Treasury Bond ETF (SHV) tracks an index of Treasury bonds with maturities of three years or less.
Another way to invest in short-term bonds is through a certificate of deposit (CD). A CD is a type of savings account that offers a fixed interest rate for a specific period of time. CDs are typically available with maturities of three months to five years.
2. Floating-rate bonds
Floating-rate bonds have interest rates that reset periodically, typically every quarter or six months. This means that your investment will benefit from rising interest rates.
Floating-rate bonds are a good choice for investors who are looking for a source of income and who are comfortable with some volatility. Floating-rate bonds are typically issued by companies, but they can also be issued by governments and other entities.
One way to invest in floating-rate bonds is through a floating-rate bond ETF. A floating-rate bond ETF tracks an index of bonds with floating interest rates. For example, the iShares Floating Rate Note ETF (FLOT) tracks an index of investment-grade floating-rate bonds.
Another way to invest in floating-rate bonds is to buy individual bonds. When buying individual floating-rate bonds, it is important to carefully consider the creditworthiness of the issuer.
3. Dividend stocks
Dividend stocks are a good way to generate income during high interest rates. Dividend stocks are shares of companies that pay out a portion of their profits to shareholders on a regular basis.
Look for companies with a strong track record of paying dividends and a healthy balance sheet. Some examples of dividend-paying stocks include Johnson & Johnson (JNJ), Procter & Gamble (PG), and Coca-Cola (KO).
4. Financial stocks
Financial stocks, such as banks and insurance companies, tend to do well when interest rates are rising. This is because they can charge higher interest rates on loans and investments.
Financial stocks are a good choice for investors who are looking for capital appreciation and income. However, it is important to note that financial stocks can be volatile, especially during periods of economic uncertainty.
Some examples of financial stocks include JPMorgan Chase (JPM), Bank of America (BAC), and Berkshire Hathaway (BRK.A).
5. Real estate
Real estate is a long-term investment that can benefit from rising interest rates. As interest rates rise, the value of existing homes tends to increase, and rental income can rise as well.
Real estate can be a good investment for investors who are looking for capital appreciation and income. However, it is important to note that real estate is a illiquid asset, meaning that it can be difficult to sell quickly.
One way to invest in real estate is to buy a rental property. Another way to invest in real estate is through a real estate investment trust (REIT). A REIT is a company that owns and operates income-producing real estate. REITs trade on stock exchanges, so you can buy and sell them like any other stock.
The five investments listed above are a good place to start when looking for investments that can thrive in a high interest rate environment. However, it is important to note that no investment is risk-free. Before making any investment decisions, you should carefully consider your financial situation and investment goals. You should also consult with a financial advisor to get personalized advice.