This is the common "bullet vs. barbell" debate. Both seem to work OK if you are just looking at CAGR, but I believe that the cash portion of the barbell offers certain advantages. For example, if you include all your assets in your PP and you have a cash position of 25% (or whatever), that portion can be tapped for significant expenses without necessarily throwing off the whole mix by too much. With the bullet approach, you would likely be selling off some intermediate bonds (possibly at an inopportune time) if you wanted to take a largish chunk out for living, college, home repair expenses, etc.tarentola wrote:I did a comparison of two PPs in Portfolio Visualizer, a conventional PP with long bonds and another with intermediate bonds replacing long bonds, 5/25% rebalancing. To my surprise, there was little difference between them, and the difference depended on the period examined. For 1972-2016, the long bond version wins by a small margin. CAGRs and MaxDDs are virtually identical with differences of a fraction of a percent. For 1972-1990, the intermediate bond version wins, again by a small margin. In recent years, the long bond version performs better, beating the intermediate version's CAGR by about half a percentage point in 2000-2016.
If you have a separate emergency fund outside of your PP, this probably wouldn't be much of an issue.
Lastly, in a severe stock drawdown like 2008, having a bunch of cash allows one to rebalance and buy some cheaper shares fairly easily. Just food for thought. The intermediate approach might be good if the volatility of 30-year treasuries stresses you out. Being less stressed out has value as well. Investing shouldn't always be about maximizing CAGR.