While elevated interest rates continue to smother the economy, it’s not all bad news.

Regardless of how grim things may appear, every scenario carries money-making opportunities.

So, what’s the best way to navigate the current market? Or, put differently, how can you take advantage of today’s historically high interest rates?

Read on to learn about 10 financial moved that have historically fared well in high-interest-rate environments like the one today.

Consider investing in "fixed-income"

Fixed-income products, like money market funds, bonds, CDs (certificates of deposit), and others, offer investors significant yields on relatively safe products.

For example, last month, the bond market’s benchmark 10-year U.S. Treasury note hit its highest yield since 2007.

At the beginning of 2022, when the Fed began its current tightening campaign, the 10-year yield stood at 1.5%. By late August 2023, it topped 4.35%, nearly three times higher.

Seek out specific stock sectors

Although numerous factors affect performance, some sectors perform relatively better in a higher-rate environment.

  • Financials: Higher interest rates allow banks to earn a greater spread between what they pay customers on deposits and what they make on loans
  • Utilities: Those utility companies that can pass higher costs on to consumers often fare better than other companies in an elevated-rate market
  • Consumer staples: Businesses that produce essential goods, like food and personal products, are often less sensitive to interest rate fluctuations
  • Energy: Interest rates are often elevated because inflation is high, and inflation is often high because energy prices are rising. In this scenario, the energy sector can be an excellent investment.

Consider real assets

Today’s high-interest rates exist because the Federal Reserve is attempting to reign in surging inflation. At its peak last summer, prices were growing more than 9% annually. They've slowed, but still remain above the Fed’s desired target.

Purchasing tangible assets like real estate can act as a hedge against rising prices, allowing you to take advantage of today’s inflationary market.

Avoid stocks with high debt levels

When investing in the stock market, watch out for companies riddled with high levels of debt. Businesses with substantial variable-rate debt could experience a significant rise in interest obligations.

One way to understand a company’s debt level is to check its debt-to-equity (D/E) ratio. It’s determined by dividing the business’s total liabilities by its shareholder equity.

While the factors can vary, a ratio of 1.0 or lower is typically considered favorable. Anything 2.0 or higher is usually deemed risky, though exceptions exist.

Utilize fixed annuities

Fixed annuities are products offered by insurance companies that provide a consistent rate of return. Typically, they are targeted toward people looking for financial security in retirement.

The return is heavily dependent on prevailing interest rates. As a result, it might be an opportune time to lock down a fixed annuity. This is particularly true if you expect interest rates to come down in the near future.

Consider precious metals

Higher interest rates often drive economic concern.

As the Fed continues its fight against inflation, many are worried the economy could be headed toward a so-called “hard landing.” That is, many people are concerned the economy could quickly stagnate as growth dramatically slows.

For many investors, the best defense against an economic downturn is good old-fashioned bullion.

Gold and other precious metals are considered an effective hedge against economic uncertainty. It's no surprise, then, that gold prices have appreciated over 13% in the past year.

Note that if the Fed continues hiking rates, though, gold may not fare well because higher interest rates make income-generating investments like bonds more appealing to investors.

Consider peer-to-peer lending

In today’s environment, you can obtain favorable returns through peer-to-peer lending. This type of lending involves loans directly between one individual and another.

Keep in mind that this type of activity comes with risk. Some borrowers who use peer-to-peer lending have often been turned down by traditional financial institutions. It’s critical to fully understand your exposure before engaging in the practice.

Fortunately, most platforms provide creditworthiness checks on potential borrowers. For the right person, peer-to-peer lending can offer a lucrative addition to your portfolio, especially in today’s market.

Treasury Inflation-protected Securities (TIPS)

With prices accelerating as fast as they are, TIPS can be an obvious choice for many investors. These government-issued bonds adjust according to inflation and help protect your portfolio as prices rise.

TIPS provide a fixed rate of return, making it an excellent choice for investors who desire peace of mind in the form of consistent income.

The best part? They’re backed by the U.S. government. In other words, it’s as safe as any investment will get.

Refinance existing debt

If you expect interest rates to continue rising, it might be a good time to refinance any existing variable debt into a fixed structure.

For example, consider refinancing to a fixed rate if you have a variable-rate mortgage. While the rate may be higher initially, if interest rates continue to climb, over time you could accrue substantial savings.

Before refinancing, ensure you take stock of the entire potential cost. Refinancing may entail fees and penalties. After accounting for added expenses, confirm whether the whole transaction cost makes financial sense.

Consider rental real estate

When rates are high and rising, homebuyer demand tends to wane. Instead, many people often opt to rent and wait out the storm before buying.

As a result, it might be an excellent time to invest in a rental property. And if you can secure the property with minimal financing, even better.

After all, mortgage rates are steep at the moment.

Don’t stop hunting

Today’s economic landscape may be challenging, but it’s certainly not lacking opportunity.

Soaring interest rates and mounting inflationary pressure require creativity and a diversified investment approach. From fixed-income to sector-specific stocks, potentially lucrative investments continue to exist.

Regardless, the current environment demands prudence and vigilance.

Remaining informed and keeping investment strategies aligned with your risk tolerance and financial goals remains as crucial as ever.