These are the different investable assets, i.e. different things you can buy with your money and a bit about when they do well and when they tend to do poorly. Note, what we know about these asset classes is based on their historical behaviour, that does not mean future behaviour will be identical, but it is likely.
Total Stock Market(VT/VTI/VXUS and friends)
Crash with the economy, roughly go up 4-6% real per year averaged over many many decades. Can be down 50% for a decade or more, but generally less than 5 years.
GOOD: When economies are not in trouble and crashing(so most of the time).
BAD: When economies are a disaster.
Expected Long Term Growth: 3 to 6% real
Around 5% real return from 1327 via RR podcast # 267
Small Cap Value(IJS and friends)
Expected to outperform TSM funds over many decades by about 1%, tends to come in brief, crazy spikes up. Otherwise will trail a TSM fund for quite long periods of time. value and small stocks tend to protect against inflation, since they have done better than large growth stocks in such periods as they are more highly leveraged, and their balance sheets benefit from the inflating away of their liabilities.
BAD: When growth stocks do really well.
Expected Growth: 5 to 7% real(1% more than TSM)
Utilities(FUTY, VPU and friends)
Mostly follows TSM, a bit less risk and a bit less reward, considered better diversification than REIT's. They are meant to be very boring set of stocks that shouldn't fall as hard as TSM and should perform roughly the same. Climate Change may change their behaviour, but it's unknown at this time.
BAD: Climate change may alter their behaviour drastically, but somewhat doubtful since it is also a highly regulated industry.
Expected Growth: 4 to 5% real
REIT's(VNQ and friends)
Can outperform TSM funds, bad when interest rates rise. Roughly 78% Correlated to the S&P500(VOO). The underlying Property(i.e. actual physical dirt) itself is expected to return 0% real. Overall, don't bother, it's uncompensated risk, per: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2965146
GOOD: when interest rates goes down and economy in good shape.
BAD: Interest rates go up.
Expected Growth: 3 to 6% real.
Nobody knows yet(very new and very volatile), so far it doesn't appear to behave like gold. Also see Crypto Currencies
GOOD: Unknown, so... when it goes up.
BAD: Unknown.. so... when it goes down.
Expected Growth: Unknown
Commodities(BCI and friends)
Goes up with inflation, also goes up when economies crash, but otherwise a terrible investment. There's commodities and commodity futures. Expect commodity prices themselves to be around 0% real (if one defines inflation in terms of commodity prices, then this must be true).
GOOD: Unexpected inflation
BAD: Expected inflation happens.
Expected Growth: -4 to 0% real. (yes, it seems expected to usually return negative amounts of money.)
Gold(SGOL, IAU and friends)
Gold is expected to basically keep up with inflation and to be a "flight to safety". i.e. when stocks/economies crash, everyone rushes to buy gold and gold prices go up. Diversifies against stocks and bonds.
GOOD: When economies crash.
BAD: most every other time. Can take 100+yrs to recover from inflation.
Expected Growth: 0% real
Good when the USD weakens(goes down, relative to other currencies), Will go down as USD Strengthens(goes up relative to other currencies). Otherwise no growth at all expected.
GOOD: when USD goes down.
BAD: when USD goes up.
Expected growth: -1 to 0% real
TIPS(LTPZ and friends)
Great in falling interest rate environments(like all bonds/treasuries) also great with unexpected inflation. Otherwise slow, safe money with no expected growth.
GOOD: Unexpected Inflation, Falling Interest Rates.
Expected Growth: -1 to 0% Real.
Bonds(BND and friends)
Slow stable growth. Knowing exactly what you are buying(i.e. the income is FIXED both in time and $'s)
GOOD: Falling interest rates, consistent inflation.
BAD: rising inflation, rising interest rates.
Expected Growth: -1 to 3% Real. Certainly on the low end in the 2020 -> 2030 time frame.
Some reasons to hold bonds:
- If it's because you want the current negative correlation with the stock market(i.e. bonds go up when stocks go down), then you want something like TLT (long term treasuries) -- note, this is not guaranteed to continue, there have been times in history where the correlation was positive. This also increases volatility in the portfolio.
- If you have a fixed known expense in the future, you buy the bond with the same term as the fixed known expense. I.e. I need $10k in 5 years, then you buy a $10k 5yr bond. Probably govt backed(so TIPS probably)
- You want to offset volatility(i.e. lower the wacky ride of an all stock portfolio) then you might want something like BND/VBTLX. BNDW(world bonds would also be a good default) though personally I'd still probably recommend a long-term fund like BLV.
- You want to protect against inflation, buy TIPS. Short term TIPS will arguably match inflation a little better, at more cost to you, but it doesn't really matter much. See option 2 above for term.
With a very long time horizon, you can think of investing differently. my assumptions:
- Stocks will generally always outperform bonds(as you have to pay for safety).
- Bonds will outperform stocks sometimes.
- Giant corrections(stock market crashes) will happen, I want the re-balance bonus when it does.
- Coupon payments from bonds get re-deployed to whichever asset is cheaper that particular year.
- Over long time horizons a modest bond allocation can outperform a 100% stock portfolio (yes time horizon is cherry picked).
So all stocks isn't necessarily the bees knees.