No. of Recommendations: 0
I'm new to bonds and bond funds, and I'm trying to understand how they work and their good/bad uses. I read the forum faqs, and I think I understand what a bond is and how a bond fund works. I'm researching a short term investment strategy that will preserve capital, but potentially return more than a money market deposit account(with more risk obviously) paying about 3% yield.

I have a Scottrade account (taxable) that I'd like to take some spare cash (not emergency funds- just cash that I would use for daily use that I don't need immediately) and invest it in a bond fund or some other similar instrument that will preserve the capital but generate a higher yield than a MMDA.

Then, if I need that short term money, I can sell my shares and cash out the needed funds. I ran a few screens of funds that are no-load, no transaction fee funds, so no money would be wasted in commissions. A number of funds came out- I'm looking at those with a positive 1, 3 and 5 year track record with yields exceeding 3%.

Is this a solid strategy? Or am I researching in the wrong direction. I'm OK with some increased risk for this money, but not wild volatility, and I'm not sure if putting this in a taxable account makes sense, but this isn't retirement or long term money.
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