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I do all my investments with four index funds, and I currently have a fairly aggressive approach with 20% in a bond ETF (AGG) and 80% in three equity ETFs.

As I get older, I'll put more money in bonds. I expect to eventually hit 60% bonds. For this kind of portfolio, is a single bond ETF like AGG sufficiently diversified? It makes me nervous to have 60% of my investments in a single ETF.

Also, when I get to retirement and have 60% invested in bond-like investments, that will hopefully be a lot of money. This answer to a related question says that you may want to consider different strategies for larger investments in bonds but does not provide details. Suppose a person has $1M to invest in bond-like investments. What should they do differently from someone investing $10k in bonds?

Lastly, as more of my investments move into bonds, it will need to be done in taxable accounts. Does one take a different strategy for bond investments in taxable accounts vs. retirement accounts?

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Bond MF/ETF comes in many flavour, one way to look at them is corporate, govt. (gilt/sovreign), money market (short term, overnight lending etc.), govt. backed bonds. The ETF/MFs that invest money in these are also different types. One way to evaluate an ETF/MF is to see where they invest your money. Corporate debts are by the highest coupon paying bonds, however, the chance of default is also greater, if you wish to invest in these, it is preferable to look at the ETF/MF's debt portfolio financial ratings (Moodies etc.). Govt. bonds are more stable and unless the govt. defaults (which happens more often than we would like to think), here also look for higher rating bonds portfolio that the fund/scheme carries. The govt. backed bonds are somewhat similar to sovreign bonds, however, these are issuesd by institutions which are backed by govt. (e.g. national railways, municipal bodies etc.), any fund/scheme that invests in these bonds could also be considered and similarly measured. The last are the short term money market related, which provides the least return but are very liquid.

It is very difficult to answer how you should invest large sum on ETF/MFs that are bond oriented. However, from any investment perspective, it is better to spread your money. If I take your hypthetical case of 1M$, I would divide it into 100K$ pieces and invest in 10 different ETF/MF schemes of different flavour:

  1. One part into liquid MFs, for the liquidity in urgent/emergency circumstances (spread over appx. 3 MFs)
  2. As many parts as required in regular income generating medium term (3-5 yrs.) bond oriented MFs, which give regular interst/dividend payout for your day to day living & other expenses (spread over appx. 3 MFs)
  3. The last portion of the money, divide by 2 and one half invest in slightly lower quality but higher interest bond oriented MFs, which will give some growth in bond sector. The other half medium/long term govt. gilt oriented MF (spead over appx. 3 MFs)

Hope this helps.

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