After more than a decade of ultra-low interest rates, higher interest rates have been a tough adjustment. But as with all change, it may help to step back for some perspective. These “high” interest rates are, in a sense, a return to normalcy: Interest rates above 4% were actually quite common prior to 2008.

And historically, these higher interest rates were helpful for investors: Stocks and bonds have generated solidly positive returns in previous periods in which interest rates were above 4%.

Fed Speak? Greek to Me

The federal funds rate is the rate at which banks borrow from each other overnight. This influences the rates on everything from mortgages to the interest you earn on CDs or a savings account. A higher federal funds rate can benefit savers but make life more difficult for borrowers.

The Federal Reserve’s (Fed) Federal Open Market Committee sets the federal funds rate and can lower it to encourage borrowing and boost the economy, like it did for an extended time after the Global Financial Crisis. That period of near-zero rates lasted so long it felt normal, but it was actually quite unusual: With the exception of the 2008-2022 time frame, rates have only been below 1% for only a handful of months since 1954.

Conversely, the Fed can raise rates to help tame inflation, discourage borrowing, and slow an overheating economy—which is why rates rose so rapidly after the COVID-19 pandemic. This created a challenging environment for investors, as both stocks and bonds performed poorly when rates rose dramatically.

Adapting to the Not-So-New Normal

The encouraging news is that the shock of rising rates should be behind us. Fed officials have said they’re willing to be patient and move slowly to lower rates, which is a sign they see continued strength in the overall economy going forward. And with a history of strong performance during previous periods of higher rates, waiting for a “better” time to invest could mean missed opportunities for both stock and bond investors.