What Happens When the Fed Raises Interest Rates?
In a rising interest rate environment, investors should reduce their long-term bond allocation in favor of short to medium-term bonds. As opposed to pure growth stocks, it might be prudent to shift some of your portfolio to value stocks. When the inflation has been brought under control or is expected to cool down following interest rate measures, it's also advisable to reduce holdings of assets that serve as inflation hedges like gold, oil, or commodity holdings. However, if inflation is still running rampant, the rise in interest rates could mean negative real interest rates. In that case, these assets become attractive investment options.