As there is a great deal of speculation that interest rates will rise in the future, investments that do well with higher interest rates are a good place to start. Investments that revolve around interest rate yields, like bonds, invariably outperform in times of high interest rates.
Because bond prices are inversely related to the interest rates, high interest rates mean that bonds pay better yields, or returns, while their prices are low in comparison to the face value, or maturity day value, of the bond.
Once interest rates are already high, you might invest your money into longer maturity bonds to lock in the good rates. Just remember that the longer the time until a bond reaches maturity, the more sensitive its price will be to changes in rates along the way.
Longer Maturity Bonds Do Well With High Interest Rates
In a high interest rate environment, you can put money into bonds over stocks, since your chances to preserve your principal are often better with bonds. Stocks generally do not like high and rising interest rates, because this impacts companies’ costs to borrow money and directly affects their profits.
High quality stocks that pay substantial dividends are an alternative place to invest your money in periods of high interest rates. Many quality companies will provide you with high dividend yields when the interest rates are greater in order to attract your investment away from Certificates of Deposit and bonds. With such stocks, you gain the double edged advantage of not only good current income, but also the possibility for the stock price to gain as the company appreciates in value over the long term.
Preferred stocks can also be good investments in times of high interest rates. Many preferred stocks will pay better yields than corporate bonds that have the same rating. Preferred stocks actually share more characteristics with bonds than stocks. You can buy them and sell them on the stock exchanges just like typical common stocks though.
If you are a more conservative investor, then you can also gain some type of return in times of high interest rates with money market accounts and certificates of deposit. In periods of high interest rates, you can gain five to ten percent returns and occasionally greater with these investments. You should shop around for the best possible rates in times of very high interest rates.
Where Do You Invest When the Interest Rates Are Low?
Today’s interest rates definitely qualify as low. The truth is that at from 0 to .25%, the interest rates set by the Federal Reserve are as low as they have ever been before. This disadvantages bonds, certificates of deposit, money markets, and many preferred stocks that have fixed interest rates. Rates can hardly go lower, and as they rise, bond prices will decline.
Stocks Perform Better With Low Interest Rates
There are a few places that you can look for better returns in the low interest rate climate of today. Stocks are one such place. Stocks tend to perform well when interest rates are lower as companies are able to borrow money and expand with lower interest expenses. Some of the safer and surer types of stocks are utility stocks.
A great number of utilities are as solid as companies come in their finances, and they pay good dividend yields too. Some of these pay out around five percent dividends per year. They also tend to appreciate in value over time as their performances are quite consistent. Consolidated Edison of New York is one such utility. Source www.wealthbuildingcourse.com... For the latest updates PRESS CTR + D or visit Stock Market news Today
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