We're talking quality paper here, not junk. This is your insurance policy against complete failure. "If your company is worth $2 million, at least 20% to 30% of your other assets should be in fixed-income investments," says Evensky. Don't get hung up on their modest returns. If your company's value doubles or triples, you won't care how your bonds did. But, he adds, "if its value drops from $2 million to zero, you'll need the bonds to maintain your standard of living." Evenksy favors municipal bonds in a taxable account and short-to-intermediate corporate-bond funds in a retirement account. But pick bond mutual funds carefully. Unlike actual bonds, these have no maturity date, so you might not recover all your principal, and the amount of interest income can vary as the portfolio changes. High annual fees can cut the return even further. Look for an index fund such as Vanguard Intermediate-Term Corporate Bond (800 662-7447). Like most other Vanguard funds, it has no load and very low expenses, with a 7.65% five-year annualized return through September, 1999. Among actively managed funds, we set our Morningstar screen for slightly longer maturities and turned up Monetta Trust Intermediate Bond (800 666-3882). This no-load fund posted an 8.10% five-year annualized return through September. Its record since inception in 1993 has held up even when bonds were weak — the worst performance over any 36-month period was a 5.43% annualized gain. Or consider buying intermediate notes directly from the Treasury.

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