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Investment Strategies for Rising Rates


Much to the delight of older investors, the Federal Reserve has raised the federal funds rate three times since the end of 2016. The increased rate can mean more opportunities to capitalize, which is great news for those nearing or in retirement. Here’s a look at five different strategies to take advantage of the ever-increasing rate, according to a recent U.S. News article.

Dividend stocks

As investors near retirement, many start to steer clear of equities, but in a rising-rate environment, blue-chip stocks with dividend yields of 3.5-4% can offer older investors a positive return. And if rates continue to rise quickly, utilities stocks are another option. Exchange-traded funds (ETFs) tied to the index have also been delivering dividend yields along with capital appreciation. But it’s important to recognize that there are risks in stock investing, especially as investors near retirement. As rates rise, the attractiveness of dividend yields may diminish if rate increases cool the economy. Some industry experts believe that the tipping point for stocks may come when interest rates rise about 3%. If that’s the case, then a diversified portfolio that is rebalanced regularly can help mitigate the situation.


Bond yields typically decline as interest rates increase, but older investors shouldn’t necessarily count them out.

“With valuations in many U.S. markets steep right now, I advise a conservative stance that includes lower-volatility dividend-paying equities, investment-grade corporate bonds and investment-grade municipals for investors in higher tax brackets,” said Guy LeBas, chief fixed income strategist at Philadelphia-based Janney Montgomery Scott.

If inflation rises, dividend-paying stocks could perform well, and if stock valuations drop, investment-grade bonds could provide a cushion against loss. Sean Hughes, a financial advisor with Hughes-Dern Financial Group in Rolling Meadows, Illinois, says that creating a bond ladder may help older investors hedge against interest rate risk. This strategy involves investing in different bonds with different maturity dates, allowing you to spread out the risk associated with rising rates. Bond ladder exchange-traded funds make it possible to gain exposure to a broad group of bonds.

Annuities and life insurance

“The last 10 years have been difficult for conservative-minded investors, as low rates have them reaching for yields in riskier investments or drawing low yields from money market accounts or CDs,” said Adam Hyers of Hyers and Associates in Columbus, Ohio.

The extended period of low rates has hurt some fixed and indexed annuity accounts, but as rates rise, these contracts could become more attractive. “Multi-year fixed annuities are showing an uptick in growth and should continue to do so,” said Hyers.

Real Estate

As the stock market continues to climb, safe-guarding against potential volatility is a priority for many older investors. Mike Serio, a regional chief investment officer for Wells Fargo Private Bank in Denver, says that real estate investment trusts could help against fluctuating stock valuations.

“When rates rise initially, most REITs will trade down; however our research has shown that longer-term REITs will trade more on fundamentals than interest rates,” Serio stated.

Real estate can also shelter portfolios from the higher inflation that typically follows rate hikes. If inflation drives up the prices of housing or commercial property, investors may see better returns from income-producing rentals. REITs provide the benefits of those returns in combination with the tax advantages of investing in real estate.


As interest rates climb, low-fee investments might start to look more attractive. Investments like CDs, government bonds and fixed annuities are examples of low or no-fee investments that provide more bang for your buck as rates rise. Beyond investment fees, you should also review your financial advisor’s fees. Working with a fiduciary could help you avoid overpriced investments that don’t suit your unique needs.

Written by Rachel Summit

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