5 Best Investments For Rising Interest Rates

As the economy improves, many people wonder what are the five best investments for rising interest rates. There are rumors that the Fed may raise rates by the end of the year. This is the downside to the signs that the economic freeze is thawing; corporate earnings are by and large better-than-expected and the unemployment rate is falling. It is a fact that as the economy improves, the Fed is going to have to acknowledge finally that the recovery is indeed sustainable and will have to raise rates. The question is, what are the best investments for rising interest rates? First of all, it pays to avoid the bond market, since bonds tend to fall as interest rates rise. Stocks are still the best long-term investment, but in the short-term, fluctuations in stock price can be daunting. Therefore, it pays to take profits when they rise dramatically and buy good stocks on declines. The five best investments for rising interest rates include (in no particular order):

  1. Gold. The yellow metal can is a good protection against a slowing economy, which is often the result of rising interest rates. If consumers have to pay extra cash for increased interest rates in their accounts and mortgages, they cannot spend as much money and sectors like retail may suffer. It is always a good idea to have some gold in your portfolio, but there is never a better time to buy gold than when you suspect the economy might slow a bit. You can either own actual gold, in which case, you will need a place to store it, or gold stocks. It is recommended to look at a gold ETF which has a variety of gold mining companies.
  2. Consumer Staples. These include food companies like General Mills or health and beauty good companies like Procter and Gamble. As mentioned above, rising interest rates often lead to a fall in stocks associated with consumer spending. Since people always need soup and soap regardless of the economic condition, consumer staples are among the best investments for rising interest rates and a slowing economy.
  3. Pharmaceuticals. The healthcare sector is also a good place to buy stocks, since no matter how the economy is doing, everyone who needs medicine will pay for it. These are considered "safe" stocks as the economy declines.
  4. High-Yielding Stock. Dividends "pay" investors to own a stock, and when there is concern about coming weakness in stocks, it is a good idea to buy strong companies with solid dividend yields. In fact, when a stock price falls, dividends actually rise (since they are a percentage of the stock price) so it pays to buy dividend stocks.
  5. Buy on Weakness. One way to find the best investments for rising interest rates is not to look at the situation of rising rates itself, but to take the long-term view. Since stocks often fall if there is even talk about raising interest rates, you can "play" this news by finding usually high-priced stocks you like at lower prices. Use declines in stocks as an opportunity to find stocks you like at bargain basement prices.

One of the best investments for rising interest rates is to stay informed. Look for alternative ways to make your money work for you. It might involve rotating stocks form one sector to another, but there are always opportunities for making  money.

Reference: 

http://web.streetauthority.com/cmnts/pt/2004/06-08.asp