* Respect the importance of the move. A tightening by the Fed puts a chilling effect on stocks — and it happens fast. The Standard & Poor's 500 has seen its average gain shrivel to just 2.4% in the six months following the initial Fed rate increases going back to 1971, says Sam Stovall of S&P Capital IQ. That compares to the 9.5% average gain in the six months headed into the hike.
More from USA Today:
Is your child already a victim of ID theft?
LA unveils puny BMW electric police car
Can't afford a 15-year mortgage? Then don't buy
The danger to stock returns is a real one. The S&P 500 delivered average 5.9% annualized returns when the Fed was "restrictive" and raising rates between 1966 and 2013, says Robert Johnson, president of the American College of Financial Services and co-author of Invest with the Fed. The big problem is that during those periods inflation was 5.1%, meaning investors only got a 0.8% annualized real return. In contrast, during expansionary times when the Fed was lowering rates, stocks turned in an annualized gain of 10.6% when inflation averaged 4.2%, Johnson says.
* Don't abandon stocks completely. Some investors make the mistake of thinking the higher rates are so toxic to stocks that they should bail out completely. History shows, though, that there are good places to be. Energy, consumer goods, utilities and food stocks outperform during periods the Fed is tightening rates, Johnson says, with average annual returns of 11.5%, 8.4%, 7.8% and 7%, respectively.