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Hedging Your Portfolio Against Rising Interest Rates: Six Experts Weigh In
Financial professionals, investment firms, businesses and consumers across the U.S. have been keeping an eye on news stories about a possible rise in interest rates in recent weeks. Rising interest rates can impact the potential gains investors can receive from various instruments, so it’s wise for investment professionals, businesses and consumers to be ready if the Federal Reserve decides to make a move.
But what’s the right response to make in the face of rising interest rates? That can depend on several factors, and each organization and investor must weigh the variables. Financial experts have experience with fluctuating rates and understand the potential pitfalls—and opportunities. Below, six financial professionals from Forbes Finance Council share strategies to help investors make the right moves before and after a rise in interest rates.
1. First understand why and how interest rates change.
I would either invest in interest-rate-sensitive investments to benefit from the rise in rates, or I would invest in non-correlating assets so that I have no interest rate risk. Rates will always fluctuate based on economic cause-and-effect points. If you want to invest in interest-rate-sensitive investments, you need to first understand why and how interest rates fluctuate. - Jerry Fetta, Wealth DynamX
2. Explore alternative assets.
Diversifying your portfolio with assets that aren’t correlated to the dollar will go a long way toward isolating your wealth from interest rate risk. For example, alternative assets such as precious metals, cryptocurrencies and unmortgaged or fixed-rate real estate can help you hang on to more of your wealth if rates rise. - Tyler Gallagher, Regal Assets
3. Invest for the long term.
My first recommendation would be to invest for the long term and not try to beat any short-term fluctuation in the market. That’s how you truly grow your wealth. The other thing you need to do is diversify your portfolio across multiple investment vehicles. - Anuj Nayar, Lending Club
4. Anticipate the moves of other investors.
I recommend investing in assets that do well when interest rates are on the rise, such as growth mutual funds. Try to anticipate the moves of other investors — make your investment gains by looking at where the market is going. I am also bullish on investments in cryptocurrency. - Dave Sackett, Visibility Corporation
5. Think global.
Inflation destroys purchasing power. A successful long-term strategy preserves and grows one’s purchasing power. This means choosing assets whose long-term returns grow faster than the rate of inflation. Combine this strategy with a reasonable withdrawal rate in retirement and you grow your wealth. Only one asset consistently does this: the stocks of well-run global companies. - Erik Christman, Oxford Financial Partners
6. Leverage low-duration bonds and fixed rates.
I would offer a couple of strategies here to protect yourself against rising interest rates. First, aim for a lower duration in your bond portfolios. Second, make sure to take advantage of the current low interest rates by locking in any debt with fixed rates. - Bill Keen, Keen Wealth Advisors
