That's part of the issue with the 60/40: the bond allocation is an "index" containing a mix of Treasuries and corporate bonds plus things like mortgage-backed securities, junk bonds, and other mystery items. Total bond funds like Vanguard's are great, but they only serve to dilute volatility somewhat - unlike Treasuries, they don't provide negative correlation with stocks. Frankly I never really understood the point of a bond "index", when what you want out of it is safety.iwealth wrote:If this Boglehead were smart, instead of holding 20% cash and 32% intermediate bonds which entirely changes the risk/return profile of the intended 60/40, they'd hold 20% long bonds and 20% cash. This achieves the risk/return of the 60/40 while holding 5 years of cash.sophie wrote:The comparison of the 60/40 returns to the 25x4 PP indeed isn't fair, because the owner of the 60/40 needs to hold cash. How much isn't clear, but most would recommend a sizeable enough chunk that it's a significant fraction of the stock/bond portfolio. Similarly, the 60/40 owner has to decide when to liquidate volatile assets during the drawdown phase.
Let's assume that our hypothetical Boglehead retiree holds 5 years expenses in cash, which is a common recommendation, and 20 years expenses in the 60/40 investment, as opposed to our hypothetical PP owner who simply holds 25 years expenses in the 25x4 PP. The actual Boglehead portfolio, then, is 20% cash, 48% stocks, and 32% bonds.
A more interesting way to do a 60/40 is exactly what you suggested, or using intermediate Treasuries as in the Desert Portfolio. Oddly enough, this difference between Treasuries and other types of bonds isn't recognized over at that other investing forum. We learned that from Grandpa Harry.