We’ve all been there – the phone rings, and your mortgage lender tells you that interest rates have gone up. Maybe you panic for a second, wondering how this will affect your finances. But what if rising rates could actually be a good thing for your investments?
Turn rising interest rates into profitable opportunities with smart investments.
Invest in Singapore banks and cash-rich companies to benefit from rate hikes.
Real estate and bonds offer stability and growth in a rising-rate environment.
While many people dread the effects of rising rates, savvy investors know that these shifts in the economy present a world of opportunity. Here’s how you can make rising interest rates work in your favor and turn them into a profitable advantage.
Rising interest rates = Big opportunities for the savvy investor
Higher rates mean higher costs of borrowing, but they can also turn out to be a bargain for investors who know how to find the right opportunities. Here are some of the best ways to profit from a rising-rate environment.
| Strategy | Opportunity | Example |
| Invest in banks | Banks benefit from higher interest rates. | DBS, UOB, OCBC |
| Cash-rich companies | Companies with cash reserves earn more as rates rise. | SingTel, Wilmar |
| Real estate (REITs) | Investment properties can offer strong returns. | CapitaLand REIT, Mapletree |
| Short-term & floating rate bonds | These bonds adjust to rising rates, offering better payouts. | Floating Rate Bonds |
1. Invest in banks and financial institutions
Although you might be paying skyrocket mortgage interest payments, millions of other consumers are in that same situation. Who is making money off such mortgage payments? Banks. Local banks in Singapore, such as DBS Bank, OCBC Bank, and United Overseas Bank (UOB), will benefit as rising interest rates seep through the economy. In fact, these financial institutions flourish with rising interest rates because they make more money off the loans they processed. In a tighter borrowing base scenario, banks with solid portfolios and diversified features see growth in margins. Invest in Singapore banks and you tap into a sector with a future upside under a rising-rate environment.
2. Watch out for ash-rich companies
A company sitting on a massive cash pile – say, a prominent tech firm or a well-established industrial company in Singapore. These businesses will earn more from their cash reserves as interest rates rise. Companies with large cash reserves and low debt benefit from rising rates because they earn more from their savings, strengthening their financial position. So, investing in cash-rich companies such as Singapore Telecommunications (SingTel) or Wilmar International is another smart way to profit from rising rates without worrying about debt exposure.
3. Real estate – The hidden gem
Real estate might not be the first thing that comes to mind when one thinks of rising interest rates. But here’s a bit of a twist: the demand for investment properties often increases with rising interest rates. In the real estate market of Singapore, real property is generally doing well, as an investment, despite high-interest rates. Most especially residential and commercial property, promising higher returns on investments. Real estate and property income through REITs like CapitaLand Integrated Commercial Trust (CICT) or Mapletree Commercial Trust, can earn better returns while interest expenses increase. Properties always continue to rise in proper markets and reward long-term investors.
4. Use short-term bonds and floating rate bonds as hedge against rate hikes
When interest rates rise, normally you will see straight bonds depreciate, but short term and floating rate bonds will not be so affected. Short-term bonds are not highly responsive to increases in interest rates because they mature quickly, therefore counter balancing the effect of rate hikes. Floating-rate bonds would also adjust to current market rates, at least from the standpoint of their coupon payments, which means that as interest rates go up, so does the payment. These kinds of bonds minimise risk and give regular payout in a rising interest rate environment.
While many think that rising interest will do them harm, it is one of those wonderful boons that promise opportunities to an investor, with proper orientation. Invest in Singapore banks, cash-rich companies, real estate, and short- or floating-rate bonds and you could transform these rate increases into profit. It's just a matter of fine-tuning your strategy to spread out your investments and keep ahead of the trends.