But let's put this in perspective. As a result of this change in yield, core investment-grade bonds fell 2 percent—yes, 2 percent—their worst year since 1994. Remember, too, how equities fell some 40 percent in 2008?
Understanding that bonds had their worst year in two decades but fell 2 percent gives rise for a much-needed pause. Many analysts expect the yield to continue to rise in 2014 as the Federal Reserve reduces, or "tapers," its stimulus. But investors need to understand the benefit of having bonds in their portfolios as part of their asset allocation.
(Read more: Maximizing fixed-income investing with alternatives)
No one truly knows the velocity at which rates may rise or just how high they may go. In fact, although there are many macroeconomic positives that exist today relative to a year ago, we cannot ignore the fact that there remains uncertainty in the global economy. Witness the weak eurozone, with its structural imbalances; China's debt/infrastructure spending bubble; and Japan's test of Abenomics, the economic policy named after Prime Minister Shinzo Abe.
That's in addition to our own Fed monetary policy being far from normal, and the uncertainty as to how the Fed will exit from its zero federal funds–rate policy and unwind its huge balance sheet without economic or market shock. So although 2013 was a phenomenal year for the equity markets, the future is not a slam dunk.