To The Moon

We believe that your investment goals—rather than what’s going on in the market—should determine how you invest your money. Put another way, we don’t think rising interest rates should necessarily change the way you think about investing your core portfolio—assuming that the asset mix in that core portfolio is aligned well with your time horizon. Most investors probably don’t need to make changes to their portfolios in response to rising interest rates.

That being said, some investors may be interested in tilting their portfolios toward stock sectors and styles that may be poised to benefit from rising interest rates. Others may be looking to invest a small bit of money in securities that may help offset the impact of rising interest rates elsewhere in their portfolios. If that sounds like you, here are a few ideas for how to invest when interest rates are rising.

Favor stock sectors that typically benefit from rising interest rates and lighten up on those that don’t: The earnings of many financial-services stocks—bank stocks $Financial Select Sector SPDR Fund(XLF)$ , in particular—should benefit from rising interest rates. Meanwhile, utilities stocks become less attractive when rates rise, as their dividends become less appealing as the yields on bonds become more competitive 

Dabble in value stocks: Value stocks—which are typically undervalued relative to their worth, pay dividends, offer modest growth, and often cluster in what many would consider to be “stodgy” industries—should theoretically outperform growth stocks during periods of rising interest rates, because a growth stock is worth less than a value stock when interest rates rise.

Consider shorter-term investing: As mentioned elsewhere in this article, longer-term bonds are more sensitive to interest-rate movements. Some investors who own bonds might therefore consider moving into some shorter-term bonds or bond funds, especially if they expect to need to tap into those dollars in the next three to five years

Hold enough cash if you’re nearing or in retirement: Morningstar’s director of personal finance and retirement planning Christine Benz suggests that investors in these life stages maintain five to 10 years’ worth of portfolio withdrawals in safe or short-term investments.

Investigate bank-loan funds: Some funds invest in bank loans, whose payouts adjust or “float” upward as interest rates rise. As a result, funds that invest inbank-loan funds have been popular this year.