Monday, 27 March 2023

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Where to Park Your Cash as Interest Rates Climb – TipRanks Financial Blog

Where to Park Your Cash as Interest Rates Climb – TipRanks Financial Blog

Investors have been having a hard time navigating markets, as ongoing interest rate hikes and a suffering economy make it harder for them to know where to park their cash.

While the disinflationary process has begun, with inflation steadily coming down, the Federal Reserve has not quite yet ceased aggressive interest rate hikes for the coming months. 

At the start of February 2023, the federal funds rate stood at 4.50% to 4.75% after the central bank raised interest rates by 0.25%. This marked the eighth rate hike since monetary tightening started back in March 2022. 

Nonetheless, talks on whether the policy rate could further increase have since cooled amid the SVB collapse. However, further rate increases could be re-introduced later in the year as central banks try to dampen red-hot inflation. So, here are a few spots where you can park your money in the meantime.

High-Quality Companies with Lots of Cash

Often, companies that have high cash reserves and a low debt-to-equity (D/E) ratio will benefit more from higher interest rates. This gives them better legroom amid high uncertainty and unforeseen economic conditions. 

Household names in this category include Microsoft (NASDAQ:MSFT), Visa (NYSE:V), Accenture (NYSE:ACN), and Adobe (NASDAQ:ADBE), among other high-profile names.

Dividend-Yielding Healthcare Stocks

Companies operating in the healthcare sector often remain resilient in the face of a greater economic downturn, including rising interest rates and recession risks, since healthcare is a necessity.

Often, these companies reinvest in long-term initiatives while providing dividend payouts to their stakeholders at the same time. 

A company in this category includes Medtronic (NYSE:MDT), which has a 3.4% dividend yield and has raised its dividend for 45 consecutive years.

Payroll Processing Stocks

Another option would be to look at payroll processing companies, which often hold large reserves of cash and tend to see increased growth during times of higher or above-average interest rates. 

For starters, some of these companies hold a large “float” or OTP (other people’s money) that they are allowed to invest. Seeing that these companies hold funds for other people, it allows them more legroom to extend their portfolios, and they can use these funds in the meantime to invest in now higher-yielding assets that mature over several years. 

Another factor is that these companies feature…

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