3 Ways To Protect Your Portfolio From A Surprise September Rate Hike

Few investors and economists expect the Federal Reserve to raise interest rates in September, but it’s certainly not out of the realm of possibility.

A recent Wall Street Journal poll of 62 economists found that 72 percent predict the next U.S. interest rate hike will come in December. However, 11 percent of economists believe the Fed will go ahead and pull the trigger in September, a move that would likely take financial markets by surprise.

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If you’re looking for ways to prep for a potential rate hike, consider these three ideas:

1. Sell high-yielding stocks.

While a single 0.25 percent rate hike won’t give income investors much of an incentive to buy bonds, it would be a signal that the interest rate schedule may finally be back on track and higher rates are coming sooner or later. The Alerian MLP AMLP currently yields 10.8 percent.

2. Sell high-yield bonds.

The low-rate environment has forced a number of investors to take on way more bond risk than they are comfortable with in order to chase yield. These investors may take the first opportunity to reduce risk if they can find safer yields. The iShares iBoxx $ High Yid Corp Bond (ETF) HYG could face some selling pressure.

3. Buy bank stocks.

Record-low interest rates have suffocated banks’ net interest margins, and rising rates could finally give them a bit of breathing room. Buying the Financial Select Sector SPDR Fund XLF is one easy option.

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