[2B]

I lump cash and CDs together to create my 40% cash/bond allocation. I move the relative amounts around based on anticipated cash needs and a goal of maximizing interest income. I buy CDs because they are FDIC insured and yield well above government bonds and above most highly rated corporates. My intent in all fixed income is to hold on until redemption so changes in interest rates are not important. I don't buy bond funds because of the fluxuation in NAV.

CDs will fluxuate in value if you are interested in selling them. Because of the recent interest rate drop the CDs I bought last year are all sell above prime except the one callable one I have. I suspect it will be called at the next opportunity.

I agree that REITs are a separate asset class.

Also, corporate preferreds could be considered fixed income but the maturities (if at all) are usually way out. You are also subject to credit risk and interest rate fluxuations. I have some preferreds in closed end funds for higher yield but I limit the amount to 5% of portfolio value. I treat them as a separate asset class -- "almost fixed income."