It seems that the conventional wisdom on portfolio allocation suggests that one should include a bond component in one's portfolio. The usual way that people gain exposure to bonds is by buying a bond ETF. The relatively conservative "Bogleheads" index investing community appears to subscribe this thinking; it advocates a "three-fund portfolio" where one of the funds is a total market bond ETF.
The problem is that these bond ETFs never mature. They experience perpetual interest rate risk. A long-term rise in interest rates would lead to a more or less permanent loss of principal. Contrast this to holding a regular bond to maturity. Assuming negligible credit risk, the payout of a regular bond held to maturity is known at the time it is bought. In contrast, the payout of the bond ETF is not known in advance; there is a very real risk of permanent loss of principal when one wishes to sell in X years.
From what I see, by buying a bond ETF, one is essentially betting on interest rates to ensure the preservation of principal. This looks highly speculative to me. I have no business in predicting interest rates.
So my question is: Why does "prudent financial advice" recommend a bond ETF allocation for the purpose of diversifying one's portfolio into bonds? Bond ETFs appear to be a highly speculative "investment" that involves betting on interest rates, with no strong guarantees that the principal would remain intact. Please enlighten me, as I have so far avoided regular bond ETFs in favor of instruments with stronger guarantees of capital preservation: individual investment-grade bonds held to maturity, and investment-grade "target-maturity" bond ETFs held to liquidation.
If the preservation of principal is important, I fail to see any use of bond ETFs. Instead, I would construct a "bond ladder" consisting of individual bonds and "target-maturity" bond ETFs, all held to maturity/liquidation.