Short answer: Between the two options, I'd choose the Target Retirement Fund. But that has more to do with preferring to hold a single fund-of-funds, rather than a combination of two. If I'm going to have the convenience of a one-fund solution, I wouldn't want to muck it up by holding two one-fund solutions.
Blues wrote:I'm curious to hear if you feel that the 16% allocation to ST TIPS would induce you to select or reject one or the other of the options
Not for me. High-quality investment grade bonds (i.e., >50% US govt backed) are high-quality investment grade bonds. I don't expect a big difference in performance between the 56/14 combo of TBM/TIBM and 40/16/14 TBM/STIPS/TIBM.
Blues wrote:whether you think a 16% allocation is sufficient or meaningful given the portfolio construction
I think a 16% allocation to a fund is meaningful (I wouldn't put 16% of my portfolio on lotto tickets). But, in the context of high-quality investment grade bonds, I don't think it makes a real difference if you switch between one and another. The shorter duration of the ST TIPS fund will likely have a bigger impact (lower expected returns, lower risk) than the fact that they're TIPS. Since the ST TIPS replaced a combination of Prime MM and the intermediate/long TIPS fund, the switch to ST TIPS probably has not meaningfully changed the expected returns or the risk/volatility of the Target Retirement Fund.
Blues wrote:and finally, whether including ST TIPS within the retirement fund is a superior option when compared to the longer term TIPS fund previously offered. (Realizing in advance that ST TIPS would ordinarily have less interest rate sensitivity but also lower yield.)
Compared to the combination of Prime MM and TIPS that was in the prior iteration, there's probably not much of a difference. I think over the last few years, many investors got tired of seeing 5% of their portfolio in a fund yielding 0.01%, which is probably lower than what their checking account is paying.
I'm a long way from retirement, so I currently prefer the longer-term TIPS fund. If I was actually in or fast-approaching retirement, maybe my attitude would change. I think for retired investors who value diminished portfolio volatility, the use of the shorter-term TIPS fund would be an improvement, but only a modest one over the Prime/TIPS combo.
Don't assume I know what I'm talking about.