”Look out! When interest rates rise the markets will get hurt and bonds will lose their value.”

You've probably heard this warning many times over the last couple of years. While there is certainly some truth to the statement above, it's at best incomplete and misleading.

At the behest of our investment committee, our research department did some digging and learned that since 1980, the Federal Reserve raised interest rates 67 times. In the two years following these rate hikes, markets (as measured by the Standard & Poor’s 500 Index) rose 60 out of 67 times — nearly 90% of the time. In other words, there is nothing in recent history to suggest that a rise in interest rates will cause a bear market or significant prolonged correction.

With regards to bonds, yes it's true — price and yield have an inverse relationship. Therefore, as interest rates rise, prices will come down. But that isn't universally true. While I certainly believe that prices of long-term Treasurys and corporate bonds will decline over the coming years, a collapse is very unlikely. Moreover, short-term high-yield bonds and short-term to intermediate term (less than seven years) municipal bonds could be decent performers, as they haven't risen nearly as much as Treasurys.

Most significantly, bonds remain a key component of a well-diversified portfolio. While I continue to favor high-quality dividend-paying stocks to generate a reliable income stream, it would be foolish to shun bonds all together.

As the Federal Reserve continues its asset purchase tapering and moves closer to a date when they will begin raising interest rates — I believe at a very slow pace — investors should examine the components of their portfolios. If you own bonds, make sure that have a shorter duration. Selling some of your longer-dated bonds and keeping the money in cash is likely a wise move. Keeping the money in cash will help keep your portfolio risk down. Moreover, if rates rise more quickly than I believe, the cash will become useful as yields on CD's and other ultrasafe instruments will become more attractive.

If you are retired and on a fixed income, rising rates will ultimately prove beneficial to you. But only if you've taken the proper steps to help insulate your portfolio from some of the negative side effects and stay disciplined enough not to let short-term events derail your long-term strategy.

Read our latest research report, “Rising Rates and Changing Policy: Will they derail the bull market?”

Oliver Pursche contributed to this article.

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