First came stocks. Then there were mutual funds and index funds. Followed by target-date funds. Over time, the investor has had less and less to do, leaving the stock picking to the pros and finally, with target-date funds handing over the asset-allocation chores as well.

But will the fire-and-forget TDF strategy treat investors well during a period of rising interest rates? It’s an especially serious question for older investors whose funds are heavy on bonds that could lose value as rates go up.

“Over the long term, higher interest rates are beneficial for investors because those investors would begin to earn more interest income on their bond investments,” says Benjamin Sullivan, planner with Palisades Hudson Financial Group’s Austin, Texas, branch.

[See: 20 Awesome Dividend Stocks for Guaranteed Income.]

But investors could be stung in the near term, he says, as “rising interest rates will hurt the value of bond portfolios, especially the longer-term bonds that are held in some target retirement date funds.”

Target-date funds have been hot in recent years, appealing to investors who want to do as little as possible. They’ve become the default investment in many 401(k) plans, assigned to participants who don’t choose something else. The investor selects a fund with a target date matching the expected start of retirement.

The typical target-date fund holds a number of index funds. For young investors, nearly all is in stock funds, but as the investor ages some holdings shift to bond funds to emphasize safety over returns. Target-date funds also make annual changes to keep the asset mix on target as different holdings rise and fall.

But all this convenience, automation and reliance on indexing means the fund cannot adjust with market conditions. In fact, that’s the point: to avoid trying to spot peaks and troughs and instead stick with a mix or holdings considered appropriate based on past patterns — stocks for growth, bonds for income and safety.

But bonds are not 100 percent safe. When interest rates rise, older bonds lose value because investors prefer new ones with higher yields. That’s the risk now, with the Federal Reserve poised to raise short-term rates, a move that could ripple through the market to drive up long-term rates as well. So will this produce losses in target-date funds?

An analysis by Vanguard Group, one of the big providers, is not completely reassuring, concluding that, “TDF investors in or near retirement who begin to draw down their portfolios have a reasonable probability of funding their spending needs over both the short and long term.”

Many investors may feel a “reasonable probability” is not quite good enough. However, Vanguard adds that many investors could come out ahead as TDFs routinely replace older, stingier bonds, with new ones with higher yields. And even as rates rise bonds will continue to provide a diversification benefit — a steadying influence as stocks jump around, Vanguard adds.

One way to understand bond risk is to look at duration, a figure expressed in years that shows how much a bond or bond portfolio will gain or lose with interest rate changes. At the time of its study, Vanguard’s TDF with a 2010 target date, had 35.5 percent of its holdings in bonds, and a bond-holdings duration of 5.8 years. So every 1 percentage point rise in interest rates would cause the bond holdings to lose 5.8 percent of their value, dragging the entire portfolio down by about 2 percent if the stock portion remained flat.

[See: 8 Ways to Profit From Donald Trump’s Infrastructure Plans.]

But higher yields from new bonds added to the portfolio can be expected to offset the loss over time, allowing the investor who sticks with the fund longer than the duration period (5.8 more years, in the example) to actually benefit from rising rates, Vanguard concludes.

In the example, the fund still has more than 60 percent of its holdings in stocks six years after the investor’s retirement was expected to begin. Over time, the higher returns expected from stocks should shore up a target-date fund, to assure the fund can provide income for life, says Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pennsylvania.

“One of the biggest misconceptions investors have is that many believe they should be almost entirely in bonds (for less risk) when they retire,” he says, adding that, “retirees often don’t realize that a large equity component at retirement may be entirely appropriate.”

Higher rates will increase corporate borrowing costs, potentially hurting stock prices, Sullivan says. But he believes the Fed has been so cautious about rate hikes that this should not be much of a concern.

While he likes target-date funds, he cautions that not every investor retiring in a given year has the same tolerance for risk, need for cash or time horizon, so that a fund’s cookie-cutter asset allocation may not be suitable for all. Some investors, he says, may be better off liquidating their fund to invest in other holdings, using a customized asset allocation.

“The benefit of using an asset allocation customized to your specific needs increases as your portfolio gets larger and more complex, and comes to involve multiple types of accounts,” he says.

Another important consideration: the TDF’s “glide path,” which is the pace at which it moves money out of stocks and into bonds, says Derek Mazzarella, investment specialist at The Bulfinch Group in Needham, Massachusetts. Some funds use a “to” approach that emphasizes safety by reaching a final mix of stocks and bonds at the target date, keeping it the same after that.

Others have a “through” strategy that typically has more stocks at the target date and gradually shifts more to bonds as retirement progresses. Through funds are designed to continue benefiting from the higher returns expected from stocks, so the fund lasts through a very long retirement.

Before investing, the investor should know how risky the fund will be at and after the target date, Mazzarella says. An investor with a short life expectancy might opt for a “to” fund, one with a long expectancy a through fund.

[Read: Inflation Is Going to Rise; Here’s How to Protect Yourself.]

“I’ve found that most people are not aware of a target date fund’s glide path,” he says. “They usually don’t know what a glide path is.”

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How Higher Rates Affect Target-Date Funds originally appeared on usnews.com