Bill Gross: Fed tightening won't be too painful

Bill Gross

Likening the global financial system to a twisted game of monopoly, Bill Gross projected that the Federal Reserve will cautiously raise interest rates this year, but investors need not panic.

Gross released his monthly investment outlook on Thursday and predicted that neither stocks nor bonds would be threatened by the eventual Fed tightening. The investment guru—formerly of Pimco, and now at Janus Capital—said that a slight rate increase will arrive in 2015, despite previously indicating that he did not see a Fed move on the horizon.

Gross made news on Wednesday when he broke with previous predictions of prolonged zero-rate policy, telling CNBC's "Street Signs" that he now predicted that the Fed will raise its rates by 0.25 percent in a symbolic move sometime this year.

Thursday's note postulated that global capitalism had begun to break down in the absence of hope that an investor can find an "attractive return," but that some Fed officials had begun to "recognize the system's distortion if only because inflation is going down, not up, in the process."

Gross: Fed will raise 25 basis points this year

With this growing realization, the U.S. central bank will elect to take action, he said.

"...the Fed, uniquely in my opinion, will move up the Monopoly board's interest rates in late 2015, hoping to avoid landing on the figurative Park Place and Boardwalk in the process," Gross wrote. "It won't however, move quickly—capitalism has been damaged by the change in rules since 2008. Caution, therefore will prevail in the U.S. and elsewhere for a long time."

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Because of this caution, bonds—"despite their ridiculous yields"—will not face a new bear market, he added.

Gross also predicted that equities would not be significantly harmed by the Fed's eventual decision to raise rates.

"Investors should expect, as well, that because of the slow unwinding of zero percent rates in the U.S., that U.S. and global stocks will be supported. Their heyday is over, however.

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In the conclusion of his note, Gross warned that an investor "must be cognizant of future low and in some cases negative total returns in 2015 and beyond."

Wednesday's Federal Open Market Committee statement indicated the central bank will remain "patient" with its rate policy and that it believed economic activity had expanded "at a solid pace."