Late last year and early this year, some prominent wealth managers predicted a “Great Rotation” from bonds into stocks.

There would be a slow, steady rise in interest rates that would gently persuade investors to pull money from fixed income and stick it in equities after many years of being “under-invested” in stocks.

Instead, interest rates and the bond market reacted violently to Federal Reserve Chairman Ben Bernanke, who said that the Fed could begin tapering its massive bond purchase program later this year due to strength in the economy.

The sudden upward move in interest rates hurt stocks as well as bonds, only more so. As of this writing, the S&P 500 is down 4 percent from its peak on June 18, the day before Bernanke spoke, while an exchange-traded fund based on the Barclay’s Aggregate Bond Index declined 2 percent.

Bonds did their reputed job of lowering risk in a diversified portfolio, but not as well as one would have hoped, leading retail investors to pull a large sum from bond funds.

Rather than rotating into stocks, many investors moved their fixed income investments into cash. The thinking of some (those who were not simply panicking): why not just hold cash instead of bonds, wait for bond rates to rise and then buy back in?

As a simple illustration, take an intermediate bond fund with a duration of 4.5. This duration figure means that a one percentage point increase in interest rates (greater than recently experienced) as a general rule would lead to a 4.5 percent decline in the value of the fund.

If investors had the foresight to cash out of such a fund before such a decline, on Day One they could be up 4.5 percent compared with the people who – on paper – lost money by staying in the fund. But, assuming rates ended the year at the same level, investors who stayed with the fund (compared with those who remained in cash) would have made up much of their lost ground after a year. The reason: the bond coupons likely would be significantly higher than the return on the cash.

Even if interest rates continued to rise, investors who are able to hold could come out ahead in a few years, as this article from Schwab points out: “Should You Worry About Bond Funds If Interest Rates Rise?”  In Schwab’s illustration, the rising yield of the fund’s portfolio eventually beats out the loss on the underlying principal.

The recovery period is shorter with shorter-term bond funds, though the long-term returns would tend to be lower.

The swings have been more sudden and violent than most had expected. The volatility, while unpleasant, is not a good reason by itself to dump bonds, just as the volatility in stocks does not mean that people should shift all their money into bonds. Better to review your portfolio with your advisor, making sure you don’t hold too many longer dated bonds for your situation and that you have enough cash to meet your near-term spending needs.

This is general information and not intended as specific advice. Investors should consult their financial advisors to see how this information may apply to them.