it is a comparison of hiding out in just a cd to a comprehensive dedicated income portfolio for someone trying to AVOID bonds because they thought they were headed for a dip . ...
the income model consists of assorted bond funds covering many segments of the bond market and duration's as well as a smidgen of a dividend income fund .
the high yield fund is gone today because the risk is higher than it was and no longer offers the spread . but even then it was only 20% of that model and the entire model only represents 5 years of withdrawals . .
i see no reason to keep more than a years cash in cash instruments only . the additional rewards on the model vs the risks are very very good .
with the goal of keeping the model 75% less volatile than the s&p 500 , over the years i have been using it for short term money i have seen .
2012 10.70
2013 2.9
2014 7.1
2015 flat
2016 6.70
that is 5.60% average , not bad in a world of 1-3% cash instruments with not much risk at all . especially when you consider the cushion built up by the higher returns over the years using it vs just sitting in cd's with short term money . .
the point being that many times we give up so much more preparing for or anticipating a drop than the damage the drop usually inflicts , unless you do more damage to yourself by poor investor behavior .
if rates continue to rise than some bond funds will be swapped out for better choices. , some types of income funds and bond funds tend to do better if inflation is rising vs just rates rising . you have inflation adjusted bond funds , international bond funds if the dollar weakens , floating rate bond funds and commodity linked bond funds out there that can all be used instead when it is their time in the sun .
that is the beauty of keeping a portfolio dynamic and adaptable as the big picture changes over time .