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The downside of bond funds generally is that your NAV will decrease as interest rates increase. You will be stuck taking the loss that results unless you are willing to hold those shares until interest rates fall to their present level. This can take lots of years.

The downside of junk bond funds is that twice they have crashed much like the stock market did when there was a flight to quality. In that case you can lose your shirt. They have all the risks of the stock market on the downside without the upside potential.

You would be better off to own bonds themselves if you have more than about $25K to invest. When bonds mature you still get your money back (as long as they are credit worthy), so the bite of interest rate increases is much smaller.

There is a Bond board in Fooldom where many of these aspects are discussed. Check them out by entering bond in the board box below and pressing find.
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