For many investors, investing in bond funds means that you're looking for diversification or you're looking for income. But right now, with one exception, bond funds are not where you want to be for either. Like a good wine that's drinkable when you buy it, but which could benefit from a few years before the cork is slipped, I think the best place for most bond funds remains on the shelf - uncorked.
Junk bonds are like beer.
But that's hardly comforting news for conservative income-oriented investors who want a safe, reliable income stream. But junk bond returns can compare favorably to stock fund returns. The junk bond funds were helped by a buoyant stock market last year. While I think that these funds are safer than most highflying technology stock funds, the one time you don't want to own junk bond funds is in a recession - and we've got a Fed that looks more likely to tip us into recession rather than let us get caught up in inflation. So if you diversify into junk bonds funds, you'll only want to take a small sip of beer now.