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I will be finished with my master's degree in 4 years and I have 75K to invest. I want as much security as possible, at least till I have the degree. Then I would use the money and take an investment credit to buy real estate. After that, I would invest parts of my income more aggressively.

The dividends from the bonds would go into other bonds or funds.

Would it be wise to spend it all on bonds and maybe a small share in ETF/mutual funds?

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  • Did you know that there are bond mutual funds, and bond ETFs?
    – mhoran_psprep
    Commented Apr 1, 2018 at 11:18
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    What is the purpose of this money? @mhoran_psprep did you know that interest rates are at historic lows?
    – Harper - Reinstate Monica
    Commented Apr 1, 2018 at 20:16
  • There is very little information here on which to base any answer. Why would you buy real estate fresh out of grad school?
    – user13722
    Commented Apr 2, 2018 at 2:05
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    If by "I want as much security as possible" you mean that you want the principal to be intact in 4 years then you are limited to a CD, money market or bonds that mature in 4 years. Anything else involves risk. Non callable Investment grade preferred stocks trading at/below par currently provide about 5.5% yield but in an increasing interest rate environment (long term rates not Fed funds) they would have principal risk. Equity exposure is anybody's guess as to what will be in 4 years.
    – Bob Baerker
    Commented Apr 2, 2018 at 15:32

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I agree with @MarkPerryman, but the answer not explaining anything. I used Monte Carlo simulations(Link) to explain.

  • Initial amount: 75,000 USD
  • No contribution or withdrawal
  • Start year: 1987
  • End year: 2017
  • Simulation Period in Years: 5
  • Rebalancing annually

Here are some results.

  • US Large Cap 100%: Link
  • Total US Bond Market 100%: Link
  • 50%/50%: Link

Since you want a risk-averse strategy, let's see the worst case from each simulation. See Simulated Portfolio Balances (inflation adjusted) charts from the links. 10th Percentile lines basically represent the worst cases. 50%/50%'s 10th Percentile result is highest in 5th year. But mean standard deviation is still higher than Total US Bond Market 100%.

But since you are investing, you might want some good returns if possible, right? Now see the rest percentile lines from the graphs.

  • While US Large Cap 100%'s 90th Percentile has the highest value, 10th Percentile is the lowest. Since you want to be safe, this is might not your option.
  • Total US Bond Market 100% is very safe in 10th Percentile case scenario. But it has worst 90th Percentile results too, missing good opportunities.
  • 50%/50% has very safe 10th Percentile results too. While 90th Percentile value is not the best, it is higher than Total US Bond Market 100%.

I believe you got the idea. Generally(but not always), diversifying portfolios reduce overall risk. Investopia explained diversification well(Link). It takes some opportunities during good times too. Research yourself for the better options, but don't waste your time tweaking too little things.

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The answer to "should I invest everything in X?" is no, whatever X might be.

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If you may need the money during that period you want liquid risk free investments. Bonds are not liquid. Bond funds are risky when interest rates are going up. From what I've seen CD rates are paying about the same as risk free bonds. And if you open a CD and need your money early, the penalty are usually minimal. One year CDs are giving around 2% which to me seem like the best value vs time. Five year CDs are giving up to 2.8%. With rates going up it seems like it is better to use shorter term CDs. Laddering is also a good option.

You said you are in school so you may not have a lot of free time. But if you do have some extra time, another option might be to look for special offers. Many banks offer special new customer rates or a bonus for opening an account etc... My local credit union pays 7% on the first $500 in my savings account.

This isn't quite what you asked but I would also look into opening a Roth IRA. It's my understanding that you can take your contributions out without a penalty just not the earnings. What I'm not sure about is if you can take your contributions out at any time or if it has to be open for a certain number of years before that's allowed. But if you never end up needing the money you'll be glad you did it. You'll have 22k saved up for your retirement right out of the gate. And you can invest in pretty much anything inside your Roth that you can outside of it.

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