Investing is a proven way to build wealth over the long term, but under these trying conditions of high inflation and rising interest rates, how are investors affected? When rates are low, the overall economy runs smoothly. People are more willing to spend when they know that borrowing costs (e.g., mortgages, credit cards, loans) are reasonable, so demand grows for many goods and services. In turn, companies tend to be more profitable and the markets perform well as stock and bond prices rise. The reverse happens when inflation is high. As interest rates rise, corporate earnings and stock prices tend to fall. The bond market may decline since bond prices usually move in the opposite direction of interest rates. So, where can you find attractive opportunities when rates are high? Here are seven possibilities:

1.  Big bank stocks. Banks can generate more profit as the spread increases between the interest they must pay to lenders and the interest they can charge borrowers. When market rates are low, there’s less ability to widen spreads.
2. Price-maker stocks. Some companies have the ability to pass higher costs of production on to the consumer without any meaningful reduction in sales and profitability. Many such companies will be found in the consumer staples sector.
3. Floating rate securities. As the name implies, the yield on these securities will move up or down in tandem with rising or falling interest rates.
4. Real return bonds. Issued by the government, these bonds are pegged to the Consumer Price Index (CPI), which tracks the inflation rate of key goods and services. Real return bonds are designed to help protect investors against inflation since they pay interest based on the CPI.
5. Savings products. Guaranteed Investment Certificates and high-interest savings accounts are two popular products to help savers earn more income. Their rates of interest are linked to general market rates, so when inflation pushes interest rates higher, savers benefit.
6. Regular Contributions. Use market volatility to your advantage by making regular investment contributions. They take the guess work out of trying to time the market by automatically buying more shares/units of investments when things are down, and less when markets are up. Regularly timed contributions are the best way to make savings a habit, and are proven to increase long term returns.
7. Trust the Process. Fund managers are taking advantage of some of the market swings by selling stocks that should be down, to purchase stocks that shouldn’t be down. Patience is the key during tougher times. So you may not see this activity, but it’s happening. When markets rebound, and they always have, the investment portfolio will be positioned for gains.