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Bonds are a good investment when interest rates are falling - what is a good investment when they are rising?


Bonds are a good investment when interest rates are falling - what is a good investment when they are rising?

Abandoning bonds completely in rising rate environments is not a good idea with respect to long term asset allocation. Simply shorten the duration on your bond holdings. The shorter the duration of your bond portfolio, the less suseptible it will be to value erosion due to rising rates.

The easy answer is stocks, because traditionally they have an inverse relationship to bonds. However, a better answer is COMMODITIES. This is because when interest rates are rising, it is usually accompanied by rising inflation, and during high-inflationary periods, commodities GAIN value because demand is pretty inflexible. People are still going to buy the same amount of wheat, oil, etc, but will have to pay a higher price. So revenues and profits rise. Luxuries, service industries, and the like get squeezed when inflation goes up, because consumers have less spending power, and are spending on necessities.

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