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Here is my quick and dirty two cents...

<BUT yield and NAV seem will probably compensate enough to at least preserve principal>....

I did not look at the fund prospectus, but if interest rates rise after purchase, I believe most times NAV will decrease more than you'll recieve in dividends.


<Is there a better plan?>....

It sounds like you want access to 100% of the funds in 3 to 5 years. I'll suggest two alternatives. One is open an account with Etrade or Zionsdirect and purchaser zero-coupon treasuries (STRIPS) due in 3 to 5 years. If your putting in $500 per month, you'd just purchase every other month. The $10.00 commissions will take a little bite, but without breaking out a calculator, you might come out ahead than if it was in a short term bond fund

Secondly, buy a note ever other month in treasury direct, two year or five year.

I added on 800 square feet to our ranch type house, adding in an upstairs, a bathroom, wood flooring, tile flooring, etc, was sort of fun. If you've got questions there, feel free to ask.
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