'Do not panic': Experts explain how to stay calm and carry on investing amid rising interest rates

Last week the Reserve Bank of Australia (RBA) has raised the official cash rate by 25 basis points to 0.35%, amidst a backdrop of rising inflation. The RBA's Board also said that there will be further rate increases to come.

This follows on from moves by the United States Federal Reserve and other leading central banks to increase their nations' interest rates, with most banks hiking rates for the first time in a decade or longer.

At the current inflation rate, the cost of living in the United States will double in just over 8 years and in Australia in 14 years.

Investing in an era of rising interest rates will be brand new territory for some ASX investors.

Successfully investing with interest rates forecast to keep climbing requires a different strategy than investing in a year with falling interest rates.

So, what's an investor to do?

Adrian Frinsdorf, the director at William Buck Wealth Advisory, says that investing with higher interest rates offers "both challenges and opportunities", with no real changes to the underlying fundamentals of investing.

According to Frinsdorf:

When looking at investing with higher interest rates ahead, your investment horizon is another critical factor to consider.

"Those with a long-term outlook may not feel the need to adjust their portfolio, given that this is a cycle and they are looking 15-20 years ahead," according to the market analyst Josh Gilbert.

"On the other hand, the assets that investors purchased in 2021 may not have the same outlook now that rates are starting to rise, so now is a great time for investors to reassess their portfolios," Gilbert adds. "Banks and financials tend to perform well in rate hike cycles, this is because higher interest rates are generally beneficial to banks since they allow them to earn more net interest income."

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Source: The Motley Fool