by Scott Burns

    Q: A few years ago you recommended a Couch Potato portfolio based on six building blocks. The fourth block was to be an "unhedged international bond fund." You recommended American Century International Bond fund. That fund no longer accepts new investors. Do you have another recommendation for this block?
-- S.W., Austin, Texas
    A: American Century International Bond fund (ticker: BEGBX) was closed to new investors after Sept. 28. This was the only managed fund in the 10 funds used in my Couch Potato Building Block portfolios. It also had the highest expense ratio of the 10 funds, clocking in at 0.82 percent.

    So I view replacing it as a happy necessity. I have noted many times that I've been waiting for an index mutual fund or ETF replacement.

    While two index mutual funds for foreign bonds exist (Dimensional Funds Two Year Global and Five Year Global, ticker: DFGFX and DFGBX, respectively), they are available only to institutions and through investment advisers, so we've had to wait for a "retail" index fund.

    Now there is one.

    State Street Global Advisors recently launched its SPDR Lehman International Treasury Bond ETF (ticker: BWX). The fund has an expense ratio of 0.50 percent, which is higher than the expense ratios of its Dimensional Funds counterparts. It is also nearly double the average expense ratio of ETFs that cover fixed-income securities and currencies, so let's hope competition forces SSGA to reconsider its pricing.

    To give you a further idea of the grasping nature of the expense ratio, Powershares launched its Emerging Markets Sovereign Debt Portfolio (ticker: PCY) at about the same time, with an identical expense ratio. Powershares may be known for the variety of its ETFs, but it tends to push the envelope on expenses.

    Beyond that, this ETF has few limitations. It should serve as a good building block. About 50 percent of fund assets will be concentrated in the government securities of four countries -- Japan, Germany, Italy and Spain -- so the big bets, as expected, are on the yen and the euro. The average maturity of the fund is 8.48 years. That's a bit shorter than the TIPS index funds and about the same as the American Century International Bond fund it will replace.

    In an ideal Building Block portfolio, we'd have fixed-income funds with shorter maturities. This would reduce interest rate risk and volatility. An average maturity between two and five years, for instance, allows the investor to capture nearly 100 percent of the interest income of longer maturities at about half the risk -- so shorter maturities are a good tool for reducing the risk added by equity holdings.

    The new ETF, which has nearly 23 percent of its portfolio in Japanese government bonds, has an expected gross yield of 3.71 percent. This is much lower than domestic bond funds, but that may not always be the case. Additional return may be made as the value of the dollar declines.

    Q: I am 59 years old and have an opportunity to sell my business. I value it at 1.5 times annual gross profit, or $1.25 million. I have no desire to carry a note for any buyer in the conventional way, but I would sell if the buyer would purchase government-backed securities in my name.

    For example, if we agreed on a sales price of $1 million, the buyer would purchase Treasurys with a face value of $1 million. Their up-front cash outlay would be $500,000, and I might have to wait seven years to get all my money. If you think this idea has any merit, what federal instrument would you suggest? I would be grateful for any advice to help me through this process.
-- M.D., by e-mail

    A: Whether a buyer gives you $500,000 in Treasury securities or $500,000 in cash, what you are doing is selling your business for $500,000. If the securities grew in value to $1 million, which would take about 14 years, the growth would all be due to interest earned on the $500,000 investment.

    If you have an accountant, you should pay him a visit and ask for a quick tutorial on the time value of money. If your business is worth $1.25 million, that's what someone should pay for it, not $500,000. If you are reluctant to finance the sale of the business, it is always possible to sell a note, though you may have to discount it substantially.