Ask Matt: Should I bail on stocks if rates rise?

Q: Should I bail on stocks if rates rise?

A: Fighting the Fed is not advisable. But bailing out on stocks because higher rates might be coming isn't a great idea.

Higher short-term interest rates can alter the course of the stock market. Increased borrowing costs for consumers and businesses can cool the economy. Higher interest expenses also eat into companies' profits. When rates rise, some investors might decide to sell stock as they deem the extra risk isn't worth it. The S&P's average returns in the six months following an initial Fed rate increase is 75% lower than in the six months prior to the hike.

Traders will try to profit from the increasing odds a rate hike is coming in December. Financial stocks, for instance, were initial winners Friday coming off the better-than-expected jobs numbers, which paved the way for a short-term interest rate hike in December. But long-term investors know that if they have the right portfolio - adjustments by the Fed don't really affect their strategy. Emerging markets tend to perform well, and they should be part of your portfolio. And some parts of the U.S. market do OK, too, like energy and consumer goods. If you're diversified, you don't have to fight the Fed but swim along with it.

Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.