I think you may be overestimating the possible impact of long bonds in a total bond market index fund.tres arcenes wrote: ↑Sun Apr 04, 2021 1:23 pm I've decided to simplify things using the three-fund portfolio. I'll use I-shares ETF's. ITOT for Total U.S. Market and IXUS for Total International Stock.
I'm struggling on the Bond fund. My thinking and research leads me to believe that the Bond fund should be oriented to short term bonds in nature with high credit quality bonds. IGSB is "1 to 5 year Investment Grade Corp" with an average bond duration of 2.77 years. IEI is "3-7 year Treasury Bond Fund" with obviously the best credit ratings (AAA) with an average bond duration of 4.60 years. I am avoiding a typical "Total Bond Fund" to eliminate exposure to long-term bonds since (in theory) the risk of owning long-term bonds outweighs the minimal benefits of better returns. Any thoughts on my funds/logic would be greatly appreciated.
For a bond fund look at iShares Core US Aggregate Bond ETF (AGG) ER 0.04%. That ETF is a total bond market index fund and tracks the Bloomberg Barclays U.S. Aggregate Bond Index. The effective duration = 5.92 years, and the credit quality = AA, only about 8% in bonds with a duration of 6 years or more.
iShares 1-5 Year invmt Grd Corp Bd ETF (IGSB) ER 0.06%
is a good bond fund too. The effective duration is lower at 2.77 years, and the credit quality = A is lower too. Corporate bonds are somewhat riskier.
My preference is either total bond market or intermediate-term. We use Vanguard Intermediate-term Bond Index fund (VBILX) ER 0.07%, about 1/2 government bonds, 1/2 corporate bonds, with no mortgage backed securities (MBS), effective duration = 6.60 years, credit quality = A.