The thesis behind having bonds as I understand it is to both guard against a single nest egg's catastrophic losses (diversification) and also to safe guard asset that can be used during a market crash to purchase more "risky" equity asset at "discount" prices.
Given the above thesis, my questions are:
1) Shouldn't capital preservation be the top priority for bond holdings (and not growth/tracking the economy)? Thus, funds that's coupled to stock market conditions should be avoided (e.g. BND with its sizeable share of corporate bonds)?
2) If I want to keep a 3 fund portfolio (with ~33% allocated to "safe" bonds), what's the biggest difference in terms of risk profile when looking at a short term, medium term and long term and inflation protected treasury bond funds?
3) Should I be diversifying between the durations (and if so, what breakdown?), or is going "all-in" on Long Term treasury bond index fund fine?
So far on my shortlist of treasury bond ETF's are (please feel free to suggest others I should look into!):
- Short Term:
- SHY - iShares 1-3 Year Treasury Bond ETF
- VGSH - Vanguard Short-Term Government Bond Index Fund ETF
- IEI - iShares 3-7 Year Treasury Bond ETF
- VGIT - Vanguard Intermediate-Term Government Bond Index Fund ETF
- TLT - iShares 20+ Year Treasury Bond ETF
- VGLT - Vanguard Long-Term Government Bond Index Fund ETF
- TIP - iShares TIPS Bond ETF