Tom Stevenson: Interest rates are going to rise - it is better to prepare now So the first thing an investor should do is take a deep breath and avoid the temptation to rush into wholesale changes. In particular, a significant rotation out of bonds into equities might be premature. Interest rates are at historically low levels and are likely to stay that way for a considerable time to come. However, on both sides of the Atlantic the turn is clearly approaching. For many investors a rising rate environment will be a novel experience. Yields have broadly speaking been falling for 30 years now. There are some obvious winners and losers from rising interest rates. Most clearly, cash will become a more attractive home for savings, which will be good news for what I call reluctant investors, people for whom "return of" rather than "on" capital is the primary concern. Floating rate investments make sense if you feel that yields are heading higher. The main loser is fixed income because, as the name of the asset class suggests, coupons are set when a bond is issued and they become progressively less valuable to an investor as the risk-free rate of return improves. A higher yield leads by simple arithmetic to a lower price. The only way of avoiding this aspect of the fixed income market is to buy a bond when it is issued and hold it until it matures. Different types of bond behave differently in a rising rate environment. For example, a 30-year bond is more sensitive to changes in interest rates than one maturing after two years because there is longer for the change to have an impact. If you think rates are on the way up, you should shift into shorter-dated bonds. High yield bonds issued by less blue-chip issuers will also be less affected by shifts in interest rate expectations because for these companies the greater risk is of default. If interest rates are rising because the economy is recovering then, all other things being equal, this risk will reduce and the price of this kind of bond could actually rise in line with rates. A strategic bond fund, which shifts between government, investment grade and high yield bonds as the fund manager sees changing opportunities, is the best way for most investors to handle this complexity. Within the equity market, likely winners from rising rates will include heavy consumers of commodities (the prices of which tend to fall as rates rise). Technology stocks, which tend to have lower borrowings and benefit from a cyclical improvement in the economy, are also worth considering. Losers will include high-yielding stocks like utility companies, which investors have come to see as substitutes for bonds. The relative attraction of these kinds of shares reduces as risk-free returns improve elsewhere. It's the same story for property companies. Gold faces a different problem - it suffers from the rising opportunity cost of holding an asset with no yield. The biggest losers, of course, are borrowers, whether corporate or individual. Avoid indebted companies and fix your mortgage. The views expressed are his own He tweets at @tomstevenson63