Beware of Higher Interest Rates

As rates rise, "those bond funds are constantly buying new bonds, reinvesting their proceeds at a higher rate," Medland says.

Also, if you own individual bonds and plan to hold onto them until maturity, the decline in their market value may be irrelevant to you. You'll still get paid the same interest, and you'll still get your principal back.

4. Hire the professionals.

Many financial planners, who don't see the value in actively managed equity mutual funds, say investors can get a boost by investing in bond funds run by fixed-income experts. The recent volatility of bond markets has created opportunities for investors who really know what they're doing, Minerva's Porter says. He prefers "bond managers who can go anywhere"—who can invest wherever they see opportunities around the world—and recommends the Loomis Sayles Bond Fund (LSBRX) to his clients.

5. Don't bank on a dollar rally.

If U.S. interest rates rise, but other countries' rates hold steady, then theoretically, the value of the U.S. dollar should rise. But other central bankers are also expected to raise interest rates. Uncertainty about interest rates makes the tough game of predicting currency movements even more difficult.

Bill Larkin of Cabot Money Management believes that because of credit problems and the weak economy in the U.S., the Federal Reserve is likely to react more slowly to the inflation threat than foreign central bankers. So he suggests buying foreign government debt adjusted for inflation. However, he acknowledges a strengthening dollar could hurt the returns of that investment strategy.

6. Don't make any bold moves.

"Trying to forecast [interest rate moves is] like trying to forecast the weather in San Francisco," Benningfield says.

There may be a consensus that higher interest rates are on the way, but many disagree, arguing rates could fall further, at least in the U.S. Others think the Fed is stuck with rates at this level for a long while. Cutting rates will stimulate inflation, while raising rates "will stifle any economic recovery," says James King, president of National Penn Investors Trust (NPBC).

If investors are worried about higher interest rates, there are ways they might adjust their portfolios to avoid big risks or hedge against potential losses. But an uncertain economic environment leaves investors with no sure bets.

Steverman is a reporter for BusinessWeek's Investing channel.