What goes up, must come down, right? Well in this case, we’re seeing that down interest rates must come up.
After enjoying a few years of historically low interest rates, we’re seeing a slight increase in the cost to borrow money - and that means investors are shifting where they put their dollars. You may have already noticed the trend of rising interest rates; the mortgage industry in particular is seeing a slow but steady increase in rates over the last year. So while the shift is slow, now is the time to prepare your strategy for the potential of higher rates in the near future.
Here are some quick tips for where to invest and put your money when interest rates begin to creep up:
Keep tabs on consumer spending and stocks in particular industries. Higher interest rates usually signal a recovering economy, so keeping tabs on consumer spending and consumer good industries may help you with your portfolio. Historically, companies dealing in raw materials and those operating in real estate or construction tend to benefit from a better economy and higher interest rates - which means they’re considered hedges against inflation.
Consider refinancing today. Locking in your mortgage at lower rates before interest rates rise is a great strategy to save you money today and in the future. If you’re preparing to refinance, take a moment to clean up your credit history, resolve any minor outstanding debts and go speak to your loan officer. You may also be able to lock in a lower rate on other large debt, like your auto loan.
Look into investing products that cushion the impact of rising interest rates. Products like treasury inflation-protected securities (TIPS) are adjusted to reflect changes in inflation in the U.S. This means that TIPS are designed to mitigate the effects of inflation and rising interest rates (the idea being that as the U.S. economy improves, TIPS payments will also increase).
Maintain your diversification. Regardless of whether you decide to pivot your investing strategy as interest rates rise, don’t lose sight of the bigger picture and put all your eggs in one “interest rates are higher now” basket. Maintaining a diversified portfolio is the smartest way to protect yourself from interest rates fluctuations.