With interest rates slated to rise through 2018, it can be an opportunity for individuals to reap the most from a situation that at face value seems negative. Rising interest rates basically means it costs you more to borrow, but there are situations out there where these rising rates can actually have a positive financial impact on one’s portfolio.
Here are just a few of the ways that rising interest rates can be taken advantage of.
Taking A Look at Stocks
According to the article “How to Position Yourself for Rising Interest Rates,” one of the first investment opportunities that can benefit from rising interest rates are financial stocks. This is due to the fact that “people want to borrow and fewer people have unpaid debts when jobs and incomes trend up.”
Furthermore, consumer stocks may actually benefit from these rising interest rates as well. When the economy is strong, more people tend to have more buying power, which in turn can boost the value of consumer stocks as people make purchases that they would have put off or avoided before.
Bank on Saving More
Saving accounts and CDs have been getting hit hard by inflation and “historically low-interest rates.” With the rate increase, this will mean you can start getting more of a return on your saved money without any extra work. The increase is not significant but earning any extra money from these accounts is worth putting more aside in the meantime.
Reviewing Your 401(k)
When rates go up, it is always a good idea take a look at your 401(k). According to Investopedia, depending on the investment choices that you have within your 401(k), the increase in interest rates can be positive or negative. For example, the article outlines that “if you own mutual funds that invest in bonds inside your plan, then a rise in interest rates will probably cause the share price of your funds to drop slightly, while the interest or dividends that they pay out may rise as new holdings that pay higher rates are added to their portfolios.” In sum, make sure you understand how this rate hike will affect your current investment choices and then make any adjustments to profit the most from rising interest rates.
Prioritizing Paying Off Your Debt
Although an outlier benefit, the rising interest rates will mean that you will end up paying more overall. At first glance, this may seem bad for you, but it can actually be even more incentive for you to prioritize paying off your debts. In doing so, you can start advancing yourself towards being debt free and remove the burden of worrying about the effects of rising interest rates on your payments.
The Ripple of Rising Interest Rates
Rising interest rates will affect multiple aspects of the economy. It is important to understand how this will affect your debts and your current investment portfolio. Start by determining how the interest rate increase will affect you now and how you should react to ensure that you reduce its impact on your finances.