Reader: I am interested in finding a bond fund with a good yield with some decent security.

funds-newsletter: There are many good bond fund choices you have. Some are shown in my current Model Portfolio.

The group of funds that I most recommend now are the different classes of PIMCO Total Return or institutional bond funds managed by William Gross of PIMCO. These funds are managed by a company (and manager) that is known as being the best in the business. Their portfolios are usually in the top 1 or 2 percent of all similar intermediate term bond funds. True to form, the most well known of these funds, whose symbol is PTTRX, has shown a total return of over 12% during the last year. These funds, in my opinion, do not have a high degree of risk whatsoever. The current yield is approx. 4.8%

I also like many of the Vanguard funds, such as Total Bond Market & GNMA. With a large sum to invest, I would recommend picking perhaps at least 2 or 3 different funds for even more diversification.

The current yields on most bond funds offering decent security are not very high these days (somewhere between 2.3% and 5% at most) and will probably go lower as interest rates drop. The higher the yield you might find with other funds, the higher the risk.

It is important to look not only for the dividends but categories with the most likelihood of increasing in value. Long-term municipal bonds look particularly undervalued these days and pay nearly as much as similar maturity taxable bonds. But like other potentially undervalued investments, you should plan on holding the investment for at least 1 to 2 years in order for the category to have enough time to get back on better footing.