While most of the investment world worries about rising interest rates, banks salivate over the thought of climbing rates.
That’s because for the most part, banks are asset-sensitive. When interest rates go up, bank assets like bonds, loans and leases tend to rise higher than their liabilities such as deposits.
Rising rates also mean that banks can earn a wider spread between what they pay out in savings account interest and what they earn from Treasuries.
The Fed has previously said it won’t raise interest until 2023 or 2024, but some experts are speculating that it could come much sooner. For investors hoping to get ahead of the curve by investing in these banks, some investing apps will allow you to do it with your digital dimes and nickels.
When choosing which bank stocks to buy, don’t overthink it. The country’s largest banks including Bank of America, Citigroup, and Wells Fargo should give you solid exposure to rising interest rates.
There are a few reasons insurance companies see greater growth when interest rates go up.
First, because money moves both steadily in and out of the company, insurers hold onto a great deal of safe debt, like bonds, to ensure they’ve got the funds to back the policies they issue. Safe investments tend to fare poorly when rates are low, but a steepening yield curve provides insurance companies with better long-term returns.
Higher interest rates are also tied to a healthy economy, which means more people are making big purchases like new cars or homes — leading to the increased need for home and auto insurance coverage.
Some of the country’s largest insurance providers that may be attractive to investors while rates are still low include Chubb, Allstate and Warren Buffett’s company, Berkshire Hathaway.
3. Precious metals
Precious metals also tend to increase in value along with rising interest rates.
The Fed will begin to move rates up once it’s comfortable with the state of the economy, but before inflation rises out of control. It’s a tricky balance to find, but as the experts at the central banking system are weighing the options, it provides an opening for savvy investors.
Many investors use precious metals to hedge against inflation. When rate hikes are anticipated in the near future, silver and gold can be highly valuable assets in a portfolio.
Precious metals can also serve as more than just a safe haven asset. Resources like silver surge in demand when the economy does well, as consumers have more money for luxury items like jewelry.
When looking at investing in precious metals, there are a few ways to get in the game. You can either buy physical bullion or coins, or invest in mining stocks, ETFs or futures.
History has shown one of the best times to try to make money from metals is when inflation is set to rise. Some of the largest precious metal mining companies include Rio Tinto, BHP and Barrick Gold.
What to do if none of those sectors suit you
Of course, you don't have to limit yourself to the stock market in order to defend against rising rates.
Take farmland, for example. Agriculture has historically offered better risk-adjusted returns than the stock market and even real estate.
Even Cramer is getting in on the action — he announced he bought a farm back in May.
And these days you don’t have to buy the whole farm to make hay while the sun shines. A new platform allows you to invest in farmland by taking stake in a farm of your choice.
Before long, you’ll be harvesting your own cornucopia of fresh-grown returns — without ever having to get your hands dirty.
Generating regular income should be a top priority for risk-averse investors.
And you don’t have to limit yourself to the stock market to do that.
For instance, some popular investing services let you lock in a steady rental income stream by investing in premium commercial real estate properties — from R&D campuses in San Jose to industrial e-commerce warehouses in Baltimore.
You’ll gain exposure to high-end properties that big-time real estate moguls usually have access to.
And the best part? You'll receive regular passive income in the form of cash distributions without any headaches or hassles.