As an investor, it’s crucial to take into account various factors when formulating your investment strategy. Among these considerations, interest rates play a significant role, although they may not always seem paramount.

Interest rates not only influence borrowing costs but also exert a substantial impact on investment performance. By integrating interest rates into your investment approach using the tips provided, you can potentially enhance your return on investment for greater profitability.

Furthermore, diversifying your investment portfolio and exploring alternative investment strategies can position you to capitalize on a rising interest rate environment. Nonetheless, it’s essential to stay informed, track market trends diligently, and seek guidance from a financial advisor to make well-grounded investment decisions.

The Central Bank of Nigeria (CBN) recently announced an increase in interest rate from 22.75% to 24.75%. The latest hike emphasizes the bank’s aggressive stance on monetary policy tightening to curb the historic inflation of the Nigerian economy.

While interest rate hikes can pose challenges for investors and individuals looking to navigate this changing financial landscape, they also present opportunities for savvy investors to capitalize on.

In this article, we’ll explore strategies to make money amidst a CBN interest rate hike.

 

 

What smart investors do…

 

 

For investors looking to make more money during this time, certain things are peculiar: what investment products do the rate hike favour? What tenure of investment is advisable? 

Many investors know that interest rates have a big impact on their investments as well as on borrowing powers. They also know that interest rates can also affect what you invest in and when. 

Although many investors and analysts focus on low interest rates rising interest rates change the marketplace landscape for businesses and individual investors.

Here’s how investors can profit from rising interest rates for maximum cash out:

 

 

They Invest in Dividend-Paying Stocks

 

 

While rising interest rates can lead to volatility in the stock market, certain stocks, particularly those of dividend-paying companies, can perform well in this environment.

Dividend stocks offer investors a steady stream of income, which can help offset any losses from rising interest rates. Smart investors look for companies with a history of stable dividend payments and strong fundamentals

 

 

They Buy Real Estate

 

 

Landowners, particularly those without mortgages, can anticipate increased rental income as a result of rising interest rates.

Builders who took out loans to construct new residential or commercial properties will need to raise the prices of their units, leading tenants to pay higher rent. While rent hikes for indebted developers are a means to fulfill their financial commitments, they essentially translate into additional income for landlords without loans.

Additionally, there is a potential positive outcome for property developers nearing completion of their projects or with properties up for sale. Properties in desirable locations are likely to fetch higher prices. 

 

 

 

Invest in Banks and Brokerage Firms

 

 

Banks and brokerage firms earn money from interest. This means they can earn more when rates are higher, as credit is not as readily available during these times. As such, consumers have to pay more to borrow. 

When CBN has raised interest rates in the past, financial services firms like banks and brokerages have seen improvement in interest income and operating profit margins. This makes investing in firms like Credlanche and Digitvant MFB such a welcoming option for profit maximization. 

 

 

They Explore High-Yield Savings Accounts:

 

 

With interest rates on the rise, banks may offer higher yields on savings accounts. Look for high-yield savings accounts or certificates of deposit (CDs) that offer competitive interest rates. During this process, it’s advisable to seek significantly higher rates for new investments in fixed deposits compared to current offerings.

Savers invested in mutual funds or other schemes providing fixed returns should also expect increased returns on their investments.

 

How about Bonds?

 

 

As interest rates climb nationwide, be vigilant for bond prices to plummet, resulting in higher yields.

For investors with substantial resources, this presents an excellent buying chance as they can acquire bonds at significantly discounted prices compared to their nominal value.

Despite the potential for bond prices to rebound shortly thereafter, purchasing them when yields are elevated represents a promising investment opportunity.

 

 

Lock in Long-Term Supply Contracts

 

 

Rising rates don’t just mean higher profits for those who sell their products and services to consumers. They also mean rising prices as well.

Just as consumers pay more in interest when they borrow from banks and other lenders, businesses also have to consider what higher rates mean for their bottom lines.

Companies that can lock in long-term contracts with suppliers may enjoy better profit by avoiding increased prices for as long as possible.

 

 

Explore Alternative Investments

 

 

In addition to traditional investment vehicles, consider exploring alternative investments such as peer-to-peer lending, cryptocurrency, or commodities.

These asset classes can offer diversification and potentially higher returns in a rising interest rate environment. However, be sure to conduct thorough research and assess your risk tolerance before investing in alternative assets.

 

 

Key Takeaways

 

 

  • Interest rates should be a factor that investors should consider when crafting or readjusting their portfolios.
  • Investing in rising interest rates can be done by investing in banks and brokerage firms, tech and healthcare stocks, and companies with large cash balances.
  • You can capitalise on higher rates by purchasing real estate and selling off unneeded assets.
  • Short-term and floating-rate bonds are also suitable investments during rising rates as they reduce portfolio volatility.
  • Hedge your bets by investing in inflation-proof investments and instruments with credit-based yields.

The Bottom Line

 

 

As an investor, it’s crucial to take into account various factors when formulating your investment strategy. Among these considerations, interest rates play a significant role, although they may not always seem paramount.

Interest rates not only influence borrowing costs but also exert a substantial impact on investment performance. By integrating interest rates into your investment approach using the tips provided, you can potentially enhance your return on investment for greater profitability.

Furthermore, diversifying your investment portfolio and exploring alternative investment strategies can position you to capitalize on a rising interest rate environment. Nonetheless, it’s essential to stay informed, track market trends diligently, and seek guidance from a financial advisor to make well-grounded investment decisions.