>> I’ve been thinking for some time that corporate bond funds make a lot of sense when the market is down this far from it’s highs.
I am in cash, and I regularly think about the more abstract question “what do you do with cash right now”.
I have considered corporate bonds — very carefully chosen ones.
What always makes me pull back is the fear of inflation looming on the horizon.
Me too.
And I'm very largely in cash as well. But cash is going to depreciate rapidly in the next few years so we have to figure out what to do. Short term bond funds would seem to be one answer. The interest paid on new issue bonds has to start rising in the near future (assuming inflation). Short term bond funds will be holding maturing bonds at lower interest than the new issues they will be buying so the the average dividend should increase with inflation.
That's my current thinking. But I'm still researching bonds in general. I'm certainly no expert.
You have two sources of risk with longer-term corporate bonds: (a) inflation would not only erode the principal, but also cause yields to rise which degrades the market value of the bonds, (b) further deflation is still more than possible, and that could lead to default by the corporate borrower.