If you believe that what goes down must eventually go up, if you believe that markets tend to return to their historical averages, or if you believe that investors will stop loaning money to profligate governments for such a small return, then you also believe this: Interest rates are going to go up.

Right now, rates on just about everything -- from certificates of deposit to Treasuries to mortgages -- are at levels not seen since the 1960s. Given this multidecade low, are rates bound for a bounce? And if so, how will that affect the portfolios of people who invest in rate-sensitive securities -- namely, bond mutual funds and exchange-traded funds (ETFs) such as the iShares Lehman Aggregate Bond Fund (NYSE: AGG) and the Vanguard Total Bond Market (NYSE: BND)?

We put that question to the fee-only financial planners of the Garrett Planning Network, who are now offering a limited-time 10% discount to Fool readers. (Just click on your state in the Locate an Advisor map, and look for the Fool logo for participating advisors.) Specifically, we asked whether investors should pay attention to the possibility of higher rates. Here are their responses.

"Interest rates are so low right now that they have nowhere to go but up. When interest rates go up, the share price of a bond mutual fund will go down. However, investors holding individual bonds until they mature have some protection against loss. In a rising interest rate situation, investors should select short-term bond funds and money market funds. In retirement accounts, Treasury Inflation-Protected Securities (TIPS) are a good choice."
-- Deborah Winterhalter, CFP, Warrenville, Ill.

"Investors should always pay attention to their bond funds (and the types of bonds held in those funds) in relation to the economic cycle. There is this idea floating out there that bonds are safe. While on an aggregate basis, bonds have a lower standard deviation than stocks, it doesn't mean an investor can't incur losses on bond funds."
-- Mary Deshong-Kinkelaar, CFP, Chicago, Ill.

 "It's very difficult to time changes in the market, even if widely expected. Keep funds needed for withdrawal within three years in cash equivalents and short-term bond funds. The bond allocation in a diversified portfolio invested for the longer term should generally be kept in intermediate maturity funds (rather than long-term bond funds) to reduce volatility."
-- Lydia Palmin, CFP, Oakland, Calif.

"A certain percentage of your portfolio, no matter what your age, should be in bonds. When interest rates rise, yes, the price of bond funds may go down, but eventually their resulting yields will also rise, thus tempering the decline over longer periods of time."
-- Lea Ann Knight, CFP, CPA, Bedford, Mass.

"We recommend building bond ladders so that we do not worry about a rising interest rate environment. As bonds mature, the proceeds are reinvested in higher-yielding bonds."
-- Robert Wilgos, CFP, Newtown, Pa.

"TIPS are currently way under-appreciated by investors and advisors alike. TIPS are a great diversification tool in a portfolio beyond their inflation-protection attributes. It's what that inflation protection does in terms of their 'behavior' as an asset class:


Representative Investment

Return in 2008

Return in 2009

U.S. Stocks




Intermediate Treasuries

iShares Barclays 3-7 Year Treasury Bond (NYSE: IEI)




iShares Barclays TIPS Bond (NYSE: TIP)



Source: Morningstar

 "Our typical default allocation within fixed income is 50% U.S. intermediate Treasuries and 50% TIPS."
-- Derek Kennedy, CFP, Knoxville, Tenn.

"The longer a bond's maturity or duration, the more sensitive it is to rising interest rates. For example, a bond with a duration of 20 years will typically drop 20% in value for every 1% increase in interest rates. People have been very tempted to go out longer in maturity on the yield curve in order to get better rates because short rates are paying practically nothing right now. They are making a huge mistake. A rate of 4.6% sounds real tempting right now, but someone going out and buying a 30-year Treasury bond will really hate life when interest rates rise, and they could be getting 7% instead; then they look at their statement, and the principal value of their bond is less. Will they really want to hold on to it? Will they feel trapped?"
-- Michael Miller, CFP, Mansfield, Texas

"I advise investors only to buy short- or mid-term U.S. government debt or TIPS. I don't think corporate bonds have enough return for the risk you assume, and they are callable [which means that the issuer can redeem the bonds early, requiring the investor to scramble to find alternatives]. Long-term bonds do not adequately reward investors for the risk they assume."
-- Kevin Brosious, CFP, CPA, Allentown, Pa.

Is your "safe" money safe?
People invest in bonds to protect their portfolios from significant losses. But bonds and bond funds can lose value -- often when safety is needed the most -- which can come as an unpleasant surprise to many investors. Heed the words of these financial pros to keep the fixed-income side of your portfolio fixed. And if you want some objective, independent help with analyzing your portfolio -- or just a second opinion -- visit Garrett's Locate an Advisor map, and look for the Fool logo to get that 10% discount.