capecod:

For a fixed income allocation intended to beat inflation, you might also consider a (variable rate) loan participation open or closed end fund.  I use closed ends like PHD.  Since Fed will generally maintain a 2+% REAL-rate fed funds regime if inflation is a threat and LIBOR spreads +25 to +50 over Fed Funds and BB / B loans spread +200-450 over LIBOR, it's pretty much guaranteed that the distributibution rate will exceed inflation.  The worry, of course, is credit on B/BB corporate bank loans --- but mitigating that risk are the facts that most of the loans in these funds are secured and that bank loans are very high in the capital structure - if I recall correctly, ahead of bonds. 

 I dabbled in PHD recently, but the price fluctuation scared me off. What's the use of a 12% payout when the market value of the asset goes down 17%?

I would also doubt that the Feds can be relied on to keep rates above inflation--that certainly hasn't been true recently. But that's another discussion. 

I admit, though, that I don't understand how to gauge the risks. I have the same understanding as Dick about the relative safety vs. defaults, but I've read that interest rate spreads tend to get squeezed when Fed rates go up--which is obviously happening now and in the near future. So the earnings of these funds would not be expected to do well. Can anyone comment on this?

Aalan