Investing in a Shifting Interest-Rate Environment
There’s no way to predict exactly how much and in what direction interest rates will move next. So a wise approach to investing in this environment is to base your strategy on the probability that rates will in fact continue to shift.
My experience as a professional financial planner and investment advisor at The Rosamond Financial Group has taught me that patience, flexibility, and carefully planned strategies are all crucial components for investing in an uncertain market.
Here are my tips for navigating dynamic financial landscapes.
Revisit Your Asset Allocation
My first recommendation for investing in a changing interest-rate environment is to analyze your current asset allocation. Here are some areas to consider:
Focus on value-based stocks: Typically, value stocks do well in unstable interest-rate environments. Prioritize companies with strong financials, good valuations, and a clear competitive advantage that can withstand market shifts.
Diversify your asset classes: A familiar rule of thumb for smart investing is to spread your investments across different types of assets like stocks, bonds, and real estate. This type of investment strategy can lower your risk, enable you to take advantage of varied opportunities, and withstand interest-rate movement.
Reduce long-term bond vulnerability: Long-term bonds are highly susceptible to multiple rate changes. The more times interest rates change, the bigger the effect on long-term bond prices. Consider lowering your long-term bond distribution and researching options with less sensitivity to rate changes.
Pursue Stability and Income
Seeking stability and income in an erratic interest-rate environment requires careful planning and calculated investment diversity. Consider these options:
Dividend-paying stocks: Stocks that produce an income stream can also serve as a defense against inflation. Focus on companies with a solid history of dividend payments and strong financial performance.
Inflation-protected assets: Another way to shield yourself from inflation is to invest in Treasury Inflation-Protected Securities (TIPS) or inflation-linked ETFs.
Short-term bonds: Often, bonds with shorter terms pay good returns in a shifting interest-rate environment.
Research New Opportunities
Savvy investors look for new openings when they’re navigating an uncertain interest-rate landscape. Take a look at these lesser-known investment vehicles:
Floating-rate instruments: To adjust your portfolio alongside prevailing market rates, consider bank loans or adjustable-rate bonds. These types of investments can potentially shield your assets from interest-rate changes.
Real Estate Investment Trusts (REITs): REITs are often reliable for providing both income and long-term growth potential. REITs that focus on infrastructure or healthcare verticals tend to be more durable in shifting financial environments.
Commodities: Commodities like gold or oil can potentially shield you from inflation. But make sure you thoroughly research before purchasing commodities.
Consider Your Risk Tolerance
Changes in interest rates can create both new opportunities and challenges. Your tolerance for risk will most likely dictate how you react. Here are a few tips:
Don’t invest based solely on dividend promises: I recommend fully reviewing high-yield investments. Basing your investment decisions exclusively on attractive dividends, without considering quality and risk management, is never a good idea. This is especially true in uncertain interest-rate environments.
Hold on to your financial buffer: Your emergency fund is your lifeline. Make sure it’s fully funded at all times; you never know when interest-rate shifts will result in unforeseen expenses.
We’re Here to Help
At The Rosamond Financial Group, our number-one priority is to simplify the complexities of your financial life so you can focus on what matters most. If you need guidance with your investment decisions in this shifting interest-rate landscape, we’re here to help.
You can book a free introductory meeting online to find out why our clients are so enthusiastic about working with us. Or you can call my office at 830-798-9400 or send an email to firstname.lastname@example.org.
Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing email@example.com or schedule a call on his online calendar.