In addition to diversifying holdings, most municipal bond mutual funds offer an option for dividend reinvestment, so returns can compound over time.

FORBES: Put Intermediate Muni Funds In Your Portfolio's Rotation

Mutual funds offer an easy path to diversified foreign bond exposure, and fund managers are experienced enough to go beyond government bonds into attractive corporate issues, too.

WSJ: Upside: Finding Better Bond Yields Overseas

Another solution Vanguard and other mutual fund companies offer to retirement plans is target retirement funds.

FORBES: More Worries for Defined Contribution Plan Fiduciaries (August 31, 2006)