INTEREST RATE UPDATE

With all the FED members sounding off for the past few weeks and thoughts turning to rate rises or no, it was refreshing to read Chairman McNabb of Vanguard's letter to clients in the just-received Corporate Bond Funds Annual Report.

"With interest rates still near generational lows, it seems reasonable to assume that the next move may be up. Of course, a rise in rates is by no means preordained. Absent a crystal ball, diversification may be the next best thing. In fact, Vanguard research suggests that greater uncertainty about the outlook for the future--including economic growth, inflation, and interest rates--supports more fixed income diversification, not less."

Well said. I have three Vanguard bond funds, the short term corporate fund VFSUX, the fairly conservative high yield corporate fund VWEAX, and the Ginnie Mae Fund VFIJX with an average duration under three years. With their low costs and superb research and portfolio management they did very well last year

The PIMCO and Loomis Sayles bond funds I carry round it out, as do the closed-ends, REITs, petro trusts, and commodity funds (GCC and CFD).

Taming the income world is dealing with a totally different beast than equities which is field of play of 95% of private investors. The income world should not be an after thought to equity investment. For those living on their capital, it should be number one.