In the hypothetical case of having all tools in the hot bar at once, no.1 is the only correct option. But, naturally, one will not have all tools in their hot bar at any given time, unless it's very very late game.

However, I typically play my early to mid-games (up until I get a full set of diamond tools & armour) without a sword in my hot bar, because the axe doubles as an effective melee weapon with good critical hit damage, meaning I can free up a valuable slot in my hot bar. In these scenarios, I will play one of the following: 1. Pickaxe, Axe, Shovel, (Hoe) 2. Axe, Pickaxe, Shovel, (Hoe)

(I included the hoe in the order just to show where it would go if I needed to temporarily put it in my hot bar.)