Bonds are fixed-income securities that pay a predetermined interest rate to investors.
When interest rates rise, bond prices typically decline, as newer bonds will pay a higher rate of interest than older bonds.
However, bonds can still be a useful investment in a rising rate environment.
By investing in short-term bonds or implementing a ladder strategy, investors can minimize the risk of interest rate fluctuations.
In a ladder strategy, an investor spreads out their bond purchases across different maturities, so some bonds mature each year.
This allows the investor to reinvest in newer bonds as interest rates rise.
Stocks can also be a profitable investment in a rising interest rate environment, especially for financial institutions.
As interest rates increase, banks and other financial institutions can charge more for loans, resulting in higher profits.