One of the biggest risks to face any bond investor is that of interest rate risk. The concept of interest rate risk is an important one, especially following an economic recession where governments manipulate low rates in an effort to spur consumer spending and thereby spur the return of economic prosperity. Of course, this is the exact scenario that investors are looking at today -- historically low rates and an economy that is stubbornly trying to rebound.

What might make investors even more reluctant about switching out of their fixed income investments right now is that the warnings about interest rate risk started over one year ago. The problem is that rates remained low throughout the year and even continued to drop, allowing domestic bond investors to reap fairly healthy returns over the course of the year. However, in that same time, professional bond managers did a couple of key things that highlight just how much risk is really out there when it comes to fixed income investments. They are:

1. Reduced Duration. By reducing the duration of their bond portfolios, professional bond managers essentially reduced their risk tremendously. Remember that to calculate one's tangible risk potential, all you have to do is multiply the potential rate increase by the portfolio's average duration. Therefore, reducing that average duration is elementary to reducing investor risk of loss. And this is exactly what we have seen happen over the course of the past year.

2. Alternative fixed income investments. One of the most publicized and recommended alternatives that has been presented to bond investors has been to switch their income generation from bonds to market-linked income, such as from dividend paying stocks. One of the most successful and popular fixed-income based investment companies, PIMCO, has recently taken action that will allow its funds to invest this way as well. Given the length of time that such funds have remained committed to bond-only holdings, seeing such a shift in holdings tells investors something valuable: income and growth will come from non-bond holdings, at least in the next year or so.

The reality is that rates have remained too low for too long. And given the financial-services cause of this latest recession, market and economic recovery is likely to take a little longer than most investors are accustomed to seeing. This means that bonds will not suffer for simply a single year as rates climb quickly; it means bonds will suffer through a long and slow period of gradual rate increases. And this, after all, is something bond investors should be worried about.

In short, interest rate risk is a true and current risk that fixed income investors need to seriously consider.