In part 1 of this series, we looked at why a strong economy causing interest rates to rise is not something to be feared by investors but celebrated.

Now let’s take a look at the most important reason that rising rates don’t pose a threat to any prudently risk-managed portfolio.

In fact, I’ll show you how to set yourself up for maximum profits during the economic boom time we’re likely to see over the coming years.

Reason 3: Valuation Risk Is Always Within Your Control

Yes, the market is highly overvalued. In fact, other than the tech bubble, this is the most expensive that stocks have been in history.

However, that doesn’t mean another lost decade is likely.

S&P 500 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Three-year returns might indeed suck. And returns over the next decade are almost certainly going to disappoint anyone who thought that 14% annual returns over the last 10 years were the “new normal”.

But the only ones that truly should quake in terror at the prospect of rising interest rates are those paying absurd valuations for companies.

Ark Innovation ETF Valuations

(Source: Morningstar)

Cathie Woods at ARKK is paying 104X forward earnings for companies growing under 18%.

That’s a PEG of 5.9, which means a 91% probability that anyone buying ARKK is in for a very painful few decades, assuming those companies grow as expected.

By comparison, the average growth fund’s 36X forward earnings and 2.5 PEG seem almost cheap.

But here’s the reason that I am not losing a wink of sleep over my portfolio’s prospects over the next decade when interest rates are expected to rise by 1% to 1.5%.

Dividend Kings Phoenix Portfolio Fundamentals

(Source: Morningstar)

Our portfolio offers the 15% hyper-growth that Cathie Woods and private equity seek, which can double your money every 5 years.

We also have a 3.4% yield, wh is almost 1.5% higher than the dividend aristocrats and more than double the yield of the S&P 500 (and 4X that of the Nasdaq).

More importantly at 16.5X forward earnings, this is hyper-growth at a reasonable price.

Dividend Kings Phoenix: A Great Blue-Chip Stock Picking System

(Sources: Morningstar, JPMorgan Asset Management, Seeking Alpha)

Our 188 fundamental metric safety and quality model has been proven to accurately forecast dividend cuts in even the most extreme economic conditions.

And it allows us to pick blue chips whose returns are far superior to the average company.

It’s not magic, it’s just math, and at Dividend Kings, our math is very accurate, resulting in exceptional long-term results.

How To Maximize Portfolio Gains During Economic Boom Times

(Source: JPMorgan Asset Management)

In the strongest economy in almost 40 years, industrials, financials, and communications have the most tailwinds when it comes to earnings growth.

Cummins 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Cummins is trading at a modest premium, though the PEG of 1 actually makes it a potentially reasonable buy for most long-term investors.

Prudential 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Facebook 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Three quality blue-chips, all at reasonable to attractive valuations, and all with 100+% consensus total return potential over the next five years.

That’s how you practice disciplined finance science and get results like these.

(Source: Tipranks)

Over 1,000 recommendations on over 500 companies, over 5 years. And including dividends, the average 12-month total return is +34.7%.

I’m not a market timer, I don’t use technical analysis, I don’t care what Cramer is pumping on Mad Money.

The opinions of speculators on Reddit, Youtube, and other social media platforms, have zero input into my decisions.

I don’t pay attention to 12-month price targets, or analyst downgrades, or upgrades.

I just focus on safety and quality first, and prudent valuation and sound risk management always.

And that’s literally all it takes to achieve incredible long-term results in the stock market.

SPY shares were trading at $426.29 per share on Friday morning, up $1.19 (+0.28%). Year-to-date, SPY has gained 14.77%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Adam Galas

Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...

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