The market is definitely having an interesting status at this point in time, which is becoming volatile. The COVID-19 has deeply affected the market performance becoming unstable since the outbreak happened. In fact, the Coronavirus greatly influenced the stock market performance. This gains the highest volatility among all recent infectious diseases including the Spanish Flu of 1918 as once academician said. So, how to invest when interest rates are rising?
Given the recent challenging event we are facing, many investors are afraid of investing right now because of the hostile market. They think that it’s too risky and returns are not guaranteed. There’s some truth in that. But how about considering the alternatives even if it’s hard to invest when interest rates are rising?
Worry no more, because we have rounded some of the best ways to invest when interest rates are rising. When you invest in these options, it will likely benefit from interest rates that are rising. So, if you are ready to invest, feel free to refer to some of these investment options below!
How To Invest When Interest Rates Are Rising — 5 Smart Ways!
Always Go For Simple Approach
One of the best things to do for the KISS (Keep it short and simple) approach. If you are going for complex investment strategies, then you are just going to inundate yourself with overwhelming work and more stress than keeping a simple yet straightforward approach that seems logical and safer.
Having a simple approach to investment keeps you from making the obvious mistakes and will make sure you will be on the right track safely and securely. Keep in mind that a straightforward strategy gives you more flexibility with your assets and finances.
Experienced investors will always say to any novice investors is that the best investment strategy is simple. This means it’s easier to identify the issues.
Some of the common adjustments you need to make are these:
- Changing the type of your investments
- Selecting a different type of analysis
- Paying different prices for each share
- The changing of share in the company you trade
Even if you invest when the interest rate is rising or there’s fluctuation in the market, and you maintain a simple approach as your investment strategy, then you won’t likely experience a major loss.
Don’t Be Discouraged
With the challenging situation, we are currently experiencing particularly in this pandemic, it’s normal to become easily discouraged to invest. Given that the status of the market is completely unexpected and to the point unsettling, it’s hard for any investor to not be discouraged.
But always keep in mind that stock prices are destined to rise and fall as economies expand and contract. The unexpected tides of events like the pandemic, natural calamities, and others are just an extension of exacerbating the market which can inevitable.
What’s fascinating about the stock market and every investment type is plainly unpredictable and there’s actually no perfect timing to invest. That’s why it’s also important to know your risk tolerance and just stick to your financial roadmap and strategies which will give you minimal if not no losses at all. But above all, having a planned financial goal will guarantee you won’t get discouraged.
Also, it’s okay to doubt at first and to start small. This is to make sure you are testing the waters if it’s suitable for you or not. Every investment has that feeling. So, you need to stay positive and always remember that patience is a virtue, especially if what you are aiming for is a long-term investment.
Set An Investing Goals
You probably heard the term financial roadmap many times here in the article so far. Investors have been using this approach as their form of guide and to project their strategy in their investment goals be it short-term or long-term goals. It’s basically a visual guide to aid you and keep you right on track whenever you engage in your investment decisions. This actually works best for long-term goals to help you maximize your money.
Also, setting investing goals is very important because this will let you know how far is your target when achieving your goals. Ask yourself where you want financially say in two, five, or 10 years. After deciding where you want to be, then set up your financial roadmap. You can even strategize every move you will make in your investment.
Keep in mind that it doesn’t need to be complicated, as previously mentioned, even a simple approach will do. Maybe your aim is to have one million dollars in assets that you can covert in cash by the time you reach 65 for retirement income.
Having investing goals and a financial roadmap will definitely give you more determination rather than discouragement. Once you know what to do, put yourself with lots of motivation and keep a positive attitude. So, by the time of any financial disruption or market recession you have some options laid out already which can prevent major loss on your end.
It’s actually easy to build a financial roadmap we have creates an example just like this:
- Start with a budget
- Keep track of your spending and closely examine it
- Categorize your spending cash flows or your net worth
- Pay off debt
- Consider having an emergency fund
- Choose your investment option
Look at the Big Picture
One of the important things to have if you want to invest when the interest rates are rising is to look at the bigger picture. The best example of this is the Covid-19 situation. How would make an investment when there’s a turbulent crisis such as the pandemic?
Just pause for a minute and re-evaluate your goals. Know your priorities first and much better if you seek financial advice from the experts then you align it with the present situation.
Also, you need to consider some reasons to feel cautious such as the continuous rise of the stock market since the Covid-19 started which is likely to fall. There are also the repercussions of Brexit.
There is currently a surge across the United States which can again badly hit the stock market. These things are the reality we are facing it’s important to know what you are going to strategize with your investment.
On the other hand, you should also consider some of the reasons to invest while interest rates are rising. Among them is the continued success of the vaccine rollout which could lead to improvement and will influence the movement of spending and trade.
There are also emerging industries that are worth considering such as e-commerce, tech, biotech, which have to thrive instead of fall during the pandemic. Among all, the interest rates are fairly low which encourages investors to invest or spend.
Also, it is worth noting that investing is likened to a marathon, not a sprint to engage with. That said, having a long-term investment is worth taking the risk of than having short-term goals. Because you will learn many experiences from it.
Find an Investment and Invest
One of the obvious reasons is to find a suitable investment to invest in. If you are determined to invest even if the interest rates are rising, what you should do is find an investment where it can hedge against inflation and makes sure you are safe.
But keep in mind, even if the investments are inflation-proof, there are no guarantees that you won’t have high returns. After you decide on what kind of investment are you taking, consider having a financial advisor along your way especially if you are a novice investor.
These are the best investments to have:
High-yield Savings Accounts
Basically, it’s a type of savings accounts that offers more interest on your cash while sitting in the bank. Also, this investment type is an accessible vehicle for your money just like any other regular savings accounts. With lesser overhead fees, you can actually earn much fairly higher at online banks.
Added that you can easily access your cash. By simply transferring it to your main bank account or even through ATM. This is actually among the perfect options to invest especially when the interest rates are rising. It’s also an excellent option to access the cash right away.
People who have low-risk tolerance and who are only for the short-term period that wants to avoid high-level risks are suitable for this option.
Certificates of Deposit (CD)
This type of investment is usually issued by banks. Certificates of deposit offer higher interest rater compared to normal savings accounts. In addition, these are a type of time deposits that are federally insured and have specific maturity dates that span from several weeks to several years. Due to its time deposit category, you can’t withdraw easily and you have to wait for the given period of time without any penalties.
The financial establishment pays you interest at a normal interval. If it finally matures, you can get your original principal back with the addition of accrued interest.
Due to its higher pays and safety, certificates of deposit can be a suitable selection for retirees who don’t want immediate income which enables them to hold their money for a little longer.
Like a high-yield savings account, this is well suited for risk-averse investors more particularly for those who need cash at a specific time. Also, they can even bind their money in exchange for a little more yield compared to the regular savings account.
Short-term corporate bond funds
Sometimes some corporations will raise money by issuing bonds to investors. These can be bundled to bund funds that own bonds that were issued by a different corpus of corporations. The average maturity of short-term bonds ranges between one to five years. This makes them less vulnerable to rise and fall interest rates than long-term bonds.
In addition, this is best for investors that are looking for cash flow such as those people who want to reduce their portfolio risk through earning a return. Also, people who don’t want to risk so much but want a bit more yield compared to government bond funds are highly suitable for this investment type.
S&P 500 index funds
You might probably hear the famous S&P 500 index funds investment. Investing in S&P 500 offers higher returns compared to bonds or traditional banking, although this is more volatile. These index funds are composed of several hundreds of large American companies.
Among those companies came from big techs and e-commerce such as Amazon, Microsoft, Apple, Facebook, to name a few are just some of the most popular and big names in the index.
Just like any fund the S&P 500 offers diversification which gives you the freedom to own a piece from the companies listed in the index. What’s more fascinating is that it includes the companies in every industry. This makes it more resistant compared to other investments. Over time, the index fund has about 10 percent annually in return. In addition, these funds can be bought with low expense ratios.
What makes this more interesting especially for novice investors is that S&P 500 index fund provides diversified and broad exposure to the stock market. That said, if you are seeking a diversified investment with low-risk ways in investing in stocks, then is actually a great choice for you.
Should you save or invest when the pandemic is still rampant? Questions to Consider
It’s a difficult position right now to decide whether you are going to put your money into investments or rather just save the money you have right now. It can be a tough decision given that there’s a gamble in investments. But the risk are worth taking due to the significant amount of returns. While on the other hand, if you put your money in the savings account the interest rate there is not that high compared to the former option.
Before you invest especially when the interest rates are rising, you will need to make a decision if savings or investments is really the suitable option for you right now.
This will be crucial decision making especially if you make a financial roadmap or financial strategy, you will need to choose first, then devise a plan. That’s why we have devised some questions to consider before you take a step to your financial plan.
How Much Cash Do You Have?
First of all, you do not need to have a large amount of money to decide whether you will need an investment or not. Even as little as 10 or 20 dollars per week is a good habit to make. There’s a wisdom saying, little by little makes it grow. So, you can just set aside a few savings. By the time your initial savings are enough for you, then you need to decide whether you are going for a savings account or investment.
When it comes to investing, you can also start with just a few bucks every month. If you are familiar with Robo advisers such as Ellevest, Acorn, Wealthfront, to name a few, usually they offer investments that only need a minimum amount to get you started to invest.
You can even start investing even just a spare change. Those mentioned Robo advisers will invest your money for you sometimes with a low minimum fee.
If you are interested to invest but do not have the spare time to learn how, just taking a look at your retirement accounts such as 401(k), 403(b), or an individual account. If you are going to increase your contributions in your accounts, you are actually investing too.
How Much Risk Can You Endure?
If you are a prepared investor with a financial roadmap, some strategies, and knowledge with regards to the stock market and your preferred investment, then it is time to consider investing. Then there’s also what we called “risk tolerance” or basically how much risk you can tolerate when it comes to your money.
You can actually calculate your risk tolerance with some factors. This includes your time horizon, your age, and how much money you are willing to invest.
If you are a novice investor, the best thing to start off is by looking into index funds, exchange-traded funds (ETFs), or mutual funds. This is because these investments types are less risky compared to investing in individual stocks. Also, don’t stop learning about investment because it’s a vast world than you might think.
Much better to learn as much as you can from different sources such as podcasts, blogs, and books most of them are free and can be easily found on the internet. Reading this will broaden your knowledge with regards to investment and will able to know the game of it.
Also, you may want to hire a financial advisor to give you further assistance. But this is just optional, there is more you can learn from your own before you arrive at considering having a financial advisor.
When Are You Needing The Money?
If you think your e fund management is in good health, you may want to think about your time horizon and your goals. Ask yourself, when do you need the money is it after five years? ten? This is another important question to consider. Because this will reflect on your basic decision on whether you want to save or invest even when the interest rates are rising.
If you are thinking about short to medium goals, consider thinking about the next two to six years, then it’s suitable to save rather than investing it. Also, when putting it on a savings account, be sure it’s a high yield savings account just to be sure you are able to maximize the interest as possible.
With this option, you can get through traditional, online-only banks, or credit card companies which you can earn at least 1 to 2 percent interest. It’s a way more suitable option compared to the measly low percentage that your regular savings account probably accrues.
In addition, you can also think about parking your cash a CD (certificate of deposit) account. This will probably have fairly good interest rates. Although if you take your money out early, you will be charged with a penalty. If you are eyeing long-term goals, then it’s best for you to try investing in a stock market.
Do You Have A Full Funded Emergency Fund?
The first thing to consider is to fill in your emergency funds account. Ideally, it’s better to stock your account with at least three to eight month’s worth of your living expenses before you consider investing and saving further. By the time your emergency fund is secured and you feel your expenses are secured. Be sure to calculate your expenses such as groceries, utilities, mortgage, or rent.
This is the smartest thing to do before you venture into investment options. Pouring all of your money into an investment where there are uncertainties and without any proper guidance and knowledge will definitely become your undoing which is an unwise decision to commit.
What’s more interesting is that there’s a pandemic looming around and markets feel threatened and many companies have been shut down others have filed for bankruptcy.
You might be thinking, about how to invest when interest rates are rising. That’s why it’s better to fill in your emergency fund first. And if you have spare cash, then you can open a high yield savings account or go for investment.
Now that we have rounded the best possible options on how to invest when interest rates are rising, it’s up to you, reader on what kind of investment you are using. Keep in mind that it should hedge against inflation and from fluctuations. Hopefully, the pandemic crisis will have an end. So there won’t be any fear about investing and more and more trade and spending happen so the economy can fully recover and let the market become stable again.
Although there is still no perfect “timing” as to when is the right time to invest. Actually, the answer is that you should invest now and know your risk tolerance to make sure your investment goals will be achieved.
Much better is to be prepared and have a financial roadmap. So you can keep track and know where you are headed. Never stop learning in investing. Because the more you know, the more you will know how to play the game well.
So, are you preparing for your investment? Which investment are you going to choose? Feel free to drop a comment below and we love to hear your thoughts!
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