Investment Planning in a Rising-Interest-Rate Environment
By John Benedict
Trying to predict interest-rate movements is like trying to predict the weather—tricky, always changing, and often unreliable. Instead of playing the guessing game, a better approach is to acknowledge the likelihood of ongoing rate fluctuations as a part of a savvy investment strategy.
Through my tenure as a financial planner and investment advisor at J2 Capital Management, I’ve learned that patience, adaptability, and well-thought-out investment plans are key in navigating uncertain markets.
Here are my top tips for thriving in dynamic financial environments.
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.
Work With a Trusted Professional
At J2 Capital Management, our primary goal is to simplify the complexities of your financial journey so you can prioritize what truly matters. If you’re looking for investment planning support and would like a second opinion on your financial decisions in this changing interest-rate environment, we’re here to offer assistance.
Schedule a meeting online or reach out to us at info@j2cmonline.com or 248-641-4444 and we share our strategies to optimize your portfolio.
About John Benedict
John Benedict is CEO, investment advisor representative, and portfolio manager at J2 Capital Management, a boutique financial advisory firm specializing in in-house custom financial planning, tax, estate, and investment management. With over 20 years of experience, John is passionate about helping clients navigate uncertain markets, reduce risk, and plan for a sound future. John combined his talents and passion in statistics and technical analysis to create J2’s tactical strategies, managing them since the beginning of the organization. He is known for being a visionary and continually looking for ways to improve J2’s services and strategies to better serve his clients. John graduated from Central Michigan University with a degree in business administration and finance, and his thoughts on markets and technical analysis have appeared in The Wall Street Journal, Investment News, and on Moneyshow.com. He was also a contributor to the book The StockTwits Edge: 40 Actionable Trade Set-Ups from Real Market Pros.
When he’s not working, you can find John boating or participating in water sports and spending time with his wife, Janine, and his three children, Jack, Alexis, and Saraphina. To learn more about John, connect with him on LinkedIn. You can also register for his latest webinar on What Makes J2 Capital Management Different From Other Financial Advisors.