The notion that bonds are fairly predictable and stocks are relatively riskier might come back to haunt investors who sank their money into bond funds. A sharp hike in interest rates could sink the value of long-term bonds by at least 20 percent, warns Paul Jacobs of Palisades Hudson Financial Group. As interest rates rise, the value of bond funds falls.
But Guy Penn of G.M. Penn Wealth Management doesn’t see real inflation—a rate that is above Federal Reserve’s target inflation rate of about 2 percent—for at least the next 6 months. Even if inflation rises above that, he says the Fed likely will make only incremental (0.25 percent) rate hikes spread over months.