How to Prepare Your Portfolio for Higher Interest Rates
While the yield on the 10-year Treasury is still near historic lows, rates have more than doubled since last spring's economic shutdown, and there are several factors that could lead to further increases. And though it seems unlikely that interest rates will skyrocket, even a moderate move higher will lead to stock market winners and losers-so you better start preparing now.
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In order to understand why higher interest rates impact the stock market, you need to remember what an investment is and how it is valued. When investing, you are paying cash today for the expectation of a cash inflow in the future. You then "discount" those future inflows into today's dollars. The higher the discount rate you use, the less valuable the investment, and vice versa.
Source Fool.com
