NEW YORK (TheStreet) -- Bill Gross is an incredibly insightful and talented fixed-income manager and strategist. He could have just as easily titled his latest commentary to be "Pick Your Poison."

According to the newsletter, Gross hopes to be able to achieve a 4% to 5% taxable rate of return this year by taking credit and currency risk (corporate and emerging market risk) and avoiding duration (interest rate risk).


A. It will be difficult for fixed-income investors to make any reasonable rates of return this year (and perhaps for the foreseeable future) if rates begin a secular trend toward higher yields;

B. "Pick your poison" -- credit risk; currency risk; interest rate risk; or switch to equities to achieve a positive rate of return on your nominal dollars (before adjusting for inflation) -- the "easy ride" in bonds is over;

C. This makes life for investors difficult trying to find "safe" returns (ask anyone who has held a municipal bond since November how "safe" they feel), and it effectively forces all investors to embrace some type of risk if they hope to achieve a rate of return from what used to be considered their "safety net";

D. Ben Bernanke and the Fed have achieved one of their goals (creating a positive wealth effect) by driving money market rates and fixed-income yields so low that, inevitably, investors have no choice but to look for returns by gravitating away from bonds and toward equities (and commodities, of course); and

E. To be clear, this perspective could be wrong, and interest rates may not head higher (or they may rise very slowly over time). Take a look at David Rosenberg's commentaries at Gluskin Sheff for a very different perspective on the direction of interest rates versus the view espoused by Gross.

So having fixed-income vehicles in the context of a diversified portfolio aiming for conservative or moderate risk tolerance (volatility) remains prudent, but don't count on the over-sized returns achieved in 2009 and 2010 to be repeated. In 2009 and 2010, we witnessed a drop in interest rates and a contraction in credit spreads, both leading to price appreciation in addition to the interest income generated by the bond that an investor held. Those days of super-sized fixed-income returns appear to have come and gone.

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Alan Zafran is a co-founder and partner at Luminous Capital, an investment-advisory firm with about $4 billion in assets. He has served as a financial adviser to wealthy families and institutional investors for the past 20 years at companies including Goldman Sachs and Merrill Lynch. In 2008, Zafran and his partners founded Luminous Capital. He was recently named a 2010 semi-finalist for the Greater Los Angeles Ernst & Young Entrepreneur of the Year Award and was also a "Top 100 Wealth Advisor" by Robb Report's Worth Magazine in 2007 and one of the "Top 50 Wealth Managers in California" by California CEO Magazine in 2006.