How rising interest rates can affect your portfolio

Last week the US Federal Reserve hiked interest rates for the sixth time since the GFC to 1.50%.

Interest rates are the most important investment benchmark, as the rate of return which can be earned in stocks is always compared to the yield on bank deposits and fixed income. A rising interest rate environment therefore means that stocks will be worth slightly less in the future then they are currently worth, as a result of a higher yardstick to compete against.

While the Australian economy has been a bit slower than the American economy lately, rates are still expected to rise in the future, which will put pressure on stocks. After all, the Australian economy won’t remain stalled forever.

What’s the best way to protect yourself from declines in the stock market?

The most important thing you can do as an investor is ensure that you don’t overpay for your investments and conservatively value companies. It’s always better to play it slightly safe, than be sorry. Pick stocks that are conservatively valued and which have attractive future earnings prospects relative to their valuations.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool's dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Marcello Pinto has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.