Where to invest in a rising rate environment

Fixed income and dividend paying mutual funds and ETFs can still provide income and a measure of downside protection even when rates rise.

Rising rates trend expected to continue

As the U.S. economy continues to improve, conditions that had driven interest rates to historic lows are now reversing course. As a result, the Federal Reserve has increased rates several times since last December. While Fidelity believes rates will remain low relative to their history, gradual increases are expected to continue, which could ultimately impact investors' portfolios.

Investing strategies for rising rates

Rising rates affect different asset categories in different ways. As rates rise, bond prices fall. Rate increases can also have a detrimental effect on dividend paying stocks. However, higher rates do not always mean negative returns for investors. These strategies can help minimize the impact of rising rates:

Short-duration bonds
Typically, are less sensitive to interest rates; offer the ability to reinvest in comparatively shorter periods

High-yield bonds
Typically, are less sensitive to rate changes; potentially higher yields can help offset price declines

Floating-rate bonds/leveraged loans
Are structured so the coupon on the bond adjusts regularly to keep pace with short-term interest rates

Treasury Inflation Protected Securities (TIPS)
Are structured so the principal value moves with inflation; when inflation rises, so does the principal, as do the bonds' interest payments

Dividend-paying stocks
Historically, faster growing dividend paying stocks have performed well when rates rise

Real return assets
Historically, perform well when rates rise; mix inflation-fighting investments such as floating-rate debt, real estate-related investments, and commodities

Fidelity investment strategies for a rising rate environment

Fidelity offers a mix of mutual funds and ETFs that employ these strategies to help minimize the impact of rising rates on your portfolio and potentially help find opportunities in a rising rate environment. Some examples of these types of investment products are below:

Mutual Funds


ETFs

Fidelity also offers hundreds of other investment products across asset classes to help you achieve your investment goals. Explore all Fidelity Funds

Thought leadership

Find your flavor of short duration
Consider your rate outlook and investing goals to choose an approach.

Bond investing ideas
The economy and Fed have challenged bonds, but opportunities exists.

Need steady income
Even in uncertain rate environments, bond ladders can provide predictable income.

Rising Rates
Consider 4 reasons that slowly rising rates should not worry bond investors.