Keeping an eye on the Federal Reserve can often become a frustrating experience because it’s often hard to predict when they’ll raise interest rates. For someone like you who plans to do some investing, it could become tricky, considering interest rates are already on a gradual rise.
The fed funds rate went up slightly in June, and it’s expected to go to 3% by 2019. In turn, this is going to affect interest rates as well, making any kind of investment either positive or negative.
If you have any current debt, it can also pose a big problem, especially if you need a loan for a major investment.
Here are some things to do this year so you can beat the inevitably higher interest rates coming over the next year or two.
Pay Off Your Debts As Quickly As You Can
Can you pay off (or pay down) your debts this year? If you can, you’ll be able to avoid rising rates on your credit cards in the near future. Of course, how much interest you pay may differ based on your credit score and the type of card you use.
Most credit card interest rates are already three points higher than the fed funds rate. This means it’s likely to go up significantly higher in two years than where it is now.
Stay away from auto or short-term loans as well. They base their interest rates on Treasury bill yields, making interest rates higher than you may know. Generally, they’ll be 2.5% higher than any Treasury note value over a three-year span.
Buy Any Assets You Need Now
Whether for personal or business purposes, you’ll want to make major asset purchases soon so you can pay them off faster before interest rates rise. Your business may need vehicles, furniture, or other assets to stay competitive, and you’ll probably need credit to buy them.
Buying now gives you a head-start on paying off sooner. The same goes with buying homes or commercial property. Investing in these, though, means potential higher rates on your mortgage later. Doing a fixed-rate mortgage is a smarter choice at this point.
Investing in Stocks and Bonds
Bonds are one of the best investment opportunities since they’re always reliable and a good source to turn to during economic downturns. They can hurt you, though, when interest rates go higher. Don’t just rely on these alone and try to diversify your portfolio as much as you can.
Investing in stocks is always best when interest rates go high. If you insist on keeping more bonds, a good workaround is to shorten maturities. Rather than keeping 20-30 year bonds, shorten them to 5-10 years. Doing so helps alleviate any losses from high-interest rates over the long-term.
A short-term bond ETF is often a popular investment to overcome this problem.
With stocks, you could take losses with high-interest rates, though fixable through some creative maneuvers.
Things to Avoid in Stock Investments
Yes, even stock investments can become affected by rising interest rates. As USA Today points out, what you invest in determines substantial profits or losses.
Over the next couple of years, you might want to get out of utilities, materials, or consumer discretionary stocks. These all dip dramatically when interest rates start rising.
The best stocks to invest in during these hikes are energy, technology, and health care. These are already strong, to begin with, though always stay more stable when the Feds raise rates. Overall, any stock not paying out dividends to their investors is safer.
Contact us at Apollo Consulting so we can help you make smart investment choices and other financial decisions when interest rates soar.