No. of Recommendations: 2
kh,

A couple of suggestions.

No default risk should be a working definition that = no default risk to you. A loss in NAV is in essence the same as default, either way you are out that capital.

A bond mutual fund behaves more like equity than bonds. Call it a hybrid if you don't want to go all the way. It will not buy you the diversity you are looking for. Something with real face value and a dependable interest stream does. As long as NAV is repriced every day you haven't minimized or diversified away "re-pricing risk" or market risk. All you did was move from Wal-Mart to Target.

If you don't want to take on corporate bonds that is fine, just don't expect a mutual fund to fill in that blank. It ceases being the asset class diversifier that you are looking for as soon as you use funds as a proxy.

If you want painfully simple. Pick a small handful of equity ETFs and then either shop CD's and build ladders or set up your Treasury Direct account to do much the same thing automatically. Doing this will capture the diversity I think your seeking. What is out of the mix is corporate bond exposure both the upside and the downside.

jack
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