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5 Ways to Invest Better During Rising Interest Rates

5 Ways to Invest Better During Rising Interest Rates

To increase your financial independence, you need to:

  1. Work harder
  2. Work smarter

Inevitably, the path to financial independence includes investing. However, investing has become increasingly challenging in today’s difficult economic landscape.

You can become a better investor in just a few minutes. If you want to increase your financial freedom, build generational wealth, or become a millionaire, keep reading.

Rate Hikes

The Federal Reserve is planning to make multiple rate hikes over the coming months.

And with good reason. According to their mandate these factors all show they should raise rates:

  • The unemployment rate nearing the record pre-pandemic lows.
  • Inflation at the highest it has been in 41 years.
  • There is a continuing surge in global commodity prices.

The Fed is under pressure to change the economy’s course. Their main tool to do this is to increase the benchmark interest rate.

Investment Strategies

stocks on an tablet

Here are five investment strategies to consider as the Fed raises interest rates.

1. Invest in Banks and Brokerage Firms

Banks and brokerage firms earn money from interest. With rising interest rates, this means they will earn more when rates go higher. Some big players here include:

  • JPMorgan Chase (JPM)
  • Bank of America (BAC)
  • Capital One (COF)
  • Citigroup (C)
  • US Bancorp (USB)
  • Wells Fargo (WFC)

2. Invest in Cash-Rich Companies

Cash-rich companies benefit from rising rates because they earn more on their cash reserves. Here are the thirteen S&P 500 companies with the most cash as of February 2022:

3. Invest in Technology, Health Care

History has shown that in periods of rising interest rates, the health care and technology sectors experience gains that have outperformed the S&P 500 Index.

4. Invest in Payroll Processing Companies

Payroll processing firms, by their very function, are required to keep large cash balances for customers in the periods between paychecks, which is when the money is distributed to their employees as payroll. These companies therefore should see improved interest revenue when interest rates rise.

Some of the big names in this industry include:

  • Paychex (PAYX)
  • Automatic Data Processing (ADP)
  • Paylocity (PCTY)

5. Buy With Financing

Individuals or businesses that are planning on making major purchases or capital expenditures should consider buying now while they still have the ability to lock in low long-term rates.

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This content is for news and educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

Author

Alexandre Lores is a personal finance writer from Tampa Bay, Florida, with the goal to help one million people achieve financial freedom. He has spent over five years studying markets and economics, finding Bitcoin in 2017 and never turning back. He frequently appears on TV and in online news articles and is a regular Twitter spaces host.

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