A rate hike looks to be on the horizon this holiday season, with most experts betting the Federal Reserve will raise interest rates by the end of the month. It may not be the present that's at the top of your holiday shopping list, but it could wind up being a gift that keeps on giving.

If you're wondering how an interest-rate hike will impact your retirement portfolio, you're not alone. A recent survey found more than half of American investors say the economy is their top financial concern, fueled in part by worries over market volatility and interest rates.

Experts say the first increase in interest rates since 2006 might not have much of an impact, but if interest rates continue to climb seven or eight times in the next three or four years, you'll start to notice it in your wallet and your investments.

"A quarter-point rate hike has almost imperceptible impact on the household budget, and it's largely reflected in the financial markets already," said Greg McBride, senior vice president and chief financial analyst for Bankrate.com. "How many more rate hikes and [at] what intervals ... they come will dictate how volatile markets are and what happens to your investment returns in 2016 and beyond."

 

Stocks may trade sideways in 2016

Interest-rate changes — as well as the U.S. presidential election and geopolitical events — could certainly exacerbate ups and downs in the financial markets next year, but some financial advisors say potential volatility should motivate you to keep an eye on your asset mix.

Despite those ups and downs, the U.S. stock market may not move much at all in 2016. Stocks have mostly traded sideways this year, except for a brief correction in late summer.

Goldman Sachs chief U.S. equity strategist David Kostin forecasts the S&P 500 Index will tread water for a second consecutive year in 2016. Including dividends, he expects the total return for the broader stock market will be about 3 percent.

Don't worry about where the stock market will be next week or next month, and stay focused on your longer-term investment goals, financial experts say. Stocks will still probably offer the best long-term returns for your retirement portfolio — and interest-rate hikes can be viewed as a positive sign. "If the Fed is raising rates, it's because the economy is getting better, and it's that better economy that will ultimately be good for the stock market," said McBride at Bankrate.com.

Stick with shorter-term bond funds, ETFs

But it is the fixed-income portion of your portfolio that is particularly rate-sensitive. Rising interest rates mean falling bond prices. So look at the duration of your bonds.

Bond funds are a big part of target-date funds in many 401(k) plans as you approach retirement. Short-term bonds may be safer. If you are invested in bond mutual funds or ETFs, you may see the net asset value of the fund fall because bond prices fall when rates rise.

If the fund invests in longer-term bonds — say, 10-year or 30-year Treasurys — you'll have to stand by as the value of those bonds drop. If you're investing in shorter-term bonds, you'll limit the time your investment is exposed to a falling bond price, while also getting the benefit of a rising yield.

"If that's the type of interest-rate sensitivity that keeps you up at night, then consider moving to shorter-term bonds and perhaps adding some floating-rate bonds and inflation-linked bonds as a way to decrease interest-rate sensitivity," McBride suggested.

Find out the type of bonds that are in your funds. But don't rush to make major changes to your bond portfolio, cautions wealth advisor Tim Maurer, director of personal finance at the BAM Alliance. "Trading your conservative bond positions for higher-yield bonds and/or dividend-paying stocks contradicts the fundamental reason for holding bonds in the first place — to stabilize your portfolio," said Maurer.

"Consider risking abject boredom with your fixed-income allocation, investing in short-term Treasurys, FDIC-insured CDs and only the highest-rated diversified municipal bonds. These securities typically should not respond with high volatility if or when interest rates rise," he added.

Protect cash, stay liquid

And lastly, protect your cash. "Laddering," or overlapping, the expiration dates on certificates of deposit (CDs) has been a common approach for keeping cash safe in a low-interest-rate environment. Laddering allows you to "step up" to a higher rate each time a CD expires.

In addition to this all-weather strategy, you also may want to just put the cash component of your investment portfolio in a money fund. "You're not getting a great return, but that return will improve as interest rates go up," McBride at Bankrate.com said. "You're gaining a lot of flexibility in terms of when you want to access the cash or invest in other assets."

 

Source: Sharon Epperson / CNBC

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