With bond funds, I think you underestimate interest rate risk. It's not that you will lose money on a bond fund if you hold long enough, but that if you sustain a capital loss, it will eat up enough of your interest return that you are better off with a CD ladder. If you can't find a bond fund (of similar risk) that pays better interest than a CD ladder with similar average duration, the CD ladder should give a better total return.I think it's a zero sum game. Collectively, the cost of capital is set by people with far more power than you and me. One asset class is not going to perform better than another (for very long), because as soon as it did, enough people would swoop up to capture the arbitrage spread. Of course, this applies only to people with a very long time horizon who can ride out the economic cycles. Obviously in the very short term, CD's might not lose capital while a bond fund could. But keep in mind, too, that the same scenario in which interest rates rise and cause bond funds to dcline also would most likely coincide with higher inflation and a decline in purchasing power, so even the "safe" return on the CD's might be less than one might otherwise think strictly by looking at the % return.-hack
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