Hi twinsmom,
A stock or bond mutual fund is not the place for a true emergency fund. If you had put your money in the Star Fund in October 2007 and an emergency came up in February 2009, about 30% of your money would be AWOL.
The only true emergency fund IMO is a daily savings account at your credit union or bank, earning around 0% presently. But at least the money would be there.
If your conditions are fairly stable (2 wage earners, good working car and no roof leaks), then the Star fund could be used. I've never had my money in that one, but I am familiar with it.
In the short term, the bond section might suffer due to the possibility of increasing interest rates banging down bonds. Also, we had a real good 2013. Stocks are considered by many fully valued, but by no means in bubble territory.
In my portfolio, I currently have about 25% cash. My near 60% in stock funds is about this old 63 year old can stand. Got the rest in bonds. Not too tasty as the reward doesn't match the risk.
Dave