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Optimized Portfolio

Investing and Personal Finance

Bogleheads 3 Fund Portfolio Review and Vanguard ETFs (2024)

Last Updated: August 27, 2023 31 Comments – 14 min. read

Financially reviewed by Patrick Flood, CFA .

The Bogleheads 3 Fund Portfolio is arguably the most popular lazy portfolio out there. Here we’ll investigate its components, historical performance, and the best ETF’s to use in its implementation in 2024.

Interested in more Lazy Portfolios? See the full list here.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here .

Bogleheads 3 Fund Portfolio Review Video

Prefer video? Watch it here:

what is the bogle 3 fund portfolio

What Is the Bogleheads 3 Fund Portfolio?

The Bogleheads 3 Fund Portfolio is arguably the most popular lazy portfolio , which just means a portfolio that you don't need to constantly monitor or change.

“Bogleheads” are followers of the advice and path of the famous Jack Bogle, founder of Vanguard and considered the father of index investing. I am one. The Bogleheads Forum houses an exchange of knowledge surrounding Bogle's principles. The Boglehead philosophy and approach is as follows:

  • Develop a workable plan .
  • Invest early and often.
  • Never bear too much or too little risk .
  • Diversify .
  • Don't try to time the market .
  • Use index funds whenever possible.
  • Keep costs low.
  • Minimize taxes.
  • Invest with simplicity.
  • Stay the course.

The Bogleheads 3 Fund Portfolio, as the name implies, is a simple portfolio comprised of 3 broad asset classes – a total U.S stock market index fund, a total international stock market index fund, and a total U.S. bond market index fund.

The Bogleheads 3 Fund Portfolio draws on the idea of portfolio diversification's ability to reduce volatility and drawdowns, protect against black swan events, and maximize risk-adjusted return . Holding multiple uncorrelated assets invariably reduces risk and can result in higher returns – and almost always higher risk-adjusted returns – than holding one asset in isolation.

Interestingly, the Bogleheads 3 Fund Portfolio does not have a specific one-size-fits-all prescription for asset allocation. The investor is encouraged to choose their own based on time horizon and tolerance for risk. Assuming a retirement age of 60, my general rule of thumb is to use [age-20] for bond allocation, obviously titrating up or down based on risk tolerance. Vanguard has a useful tool here to help you choose. You can also view how different allocations have performed historically .

Given that, for the sake of simplicity in this post, let's assume a starting age of 20 and a retirement age of 60, yielding an average investor age of 40. Many U.S. investors like to overweight U.S. stocks, Jack Bogle himself suggested a maximum of 20% in international stocks, and a Vanguard study suggested a minimum of 20% to get any reasonable diversification benefit. A compromise between those would be 20% in international stocks. Based on those parameters, a one-size-fits-most 80/20 allocation for the Bogleheads 3 Fund Portfolio is:

  • 60% U.S. Stocks
  • 20% International Stocks
  • 20% U.S. Bonds

bogleheads 3 fund portfolio

Why Index Funds?

Bogle advocated for simply “buying the whole haystack” instead of trying to find the needle. Consider these facts:

  • The evidence has shown that even most professional investors can't pick winners that beat the market over 10+ years, much less the average retail investor like you and me.
  • On the 50th birthday of the S&P 500 index, only 86 of the original 500 companies remained.
  • Blindfolded monkeys randomly throwing darts for stock picks have beaten top hedge fund managers not just once, but consistently .
  • Most stocks underperform the market; only a select few drive massive returns. Specifically, for U.S. stocks from 1926 through 2017, in terms of lifetime dollar wealth creation, only 4% of stocks accounted for the net gain above T Bills. Looking at global stock returns from 1990 through 2018, only 1.3% of stocks accounted for the positive wealth creation in excess of T Bills.

In short, we should reliably expect to see the empirical results we've observed historically: that stock picking strategies, especially those that are poorly diversified, tend to underperform the market.

Even sector bets are usually not a prudent move, as they’re just stock picking lite. Betting on sectors increases uncompensated risk – additional risk without an increase in expected return. In doing so, investors increase their chances of underperforming the market. Just like with individual stocks, some sectors will outperform and some will underperform the market. How do we know which ones will do which? And during what time periods? What about different economic cycles? Tech has had a huge run recently. Will it continue? In short, no one knows. Diversification seems to be the only free lunch with investing.

This is why broad index funds like the S&P 500 and total stock market are recommended so often. Specifically, using total market index funds, one can be fully diversified across every sector and market cap size, in this case both domestically and abroad. You can brag to your friends that you own over 10,000 stocks in your portfolio. You get exposure to the success of any sector and any stock at any given time in a market index fund, while eliminating sector risk and single company risk. Index funds are also self-cleansing in that growing companies rise within the fund and bad companies drop off.

Bogle suggested the “majesty of simplicity.” The simplicity of the 3 Fund Portfolio is underrated. This simplicity in the use of total market index funds allows investors to not have to worry about choosing the correct asset styles and cap sizes, much less the correct sectors and individual stocks.

Buying the market guarantees market returns. Using narrower funds with the goal of market outperformance (usually as a result of recency bias and performance chasing) creates complexity and the potential for market underperformance and subsequent uncertainty, dissonance, and tracking error regret, especially for novice investors. This can lead to abandoning one's strategy altogether, usually at precisely the worst time. It is imperative that investors have strong conviction in their strategy in order to stay the course.

Why International Stocks?

At global market weights, U.S. stocks only comprise about half of the global stock market. International stocks don't move in perfect lockstep with U.S. stocks, offering a diversification benefit. If U.S. stocks are declining, international stocks may be doing well, and vice versa.

If you're reading this, chances are you're in the U.S. You also probably overweight – or only have exposure to – U.S. stocks. This is called home country bias . The U.S. is one single country out of many in the world. By solely investing in one country's stocks, the portfolio becomes dangerously exposed to the potential detrimental impact of that country's political and economic risks. If you are employed in the U.S., it's likely that your human capital is highly correlated with the latter. Holding stocks globally diversifies these risks and thus mitigates their potential impact.

No single country's stock market consistently outperforms all the others in the world. If one did, that outperformance would also lead to relative overvaluation and a subsequent reversal. Meb Faber found that if you look at the past 70 years, the U.S. stock market has outperformed foreign stocks by 1% per year, but all of that outperformance has come after 2009.

“But U.S. companies do business overseas,” people exclaim.

I’ve always found that argument pretty silly. The economy is not the stock market . We care about how international stock markets behave relative to the U.S. stock market. That imperfect correlation is the  entire point  of diversification.

The fact that some U.S. firms get foreign revenues means next to nothing. Coca-Cola is going to behave like a U.S. stock at the end of the day regardless of the fact that its sales are global in scope. Excluding stocks outside the U.S. means you’re missing out on leading companies that happen to be based elsewhere, which include some of the largest automotive and electronics companies in the world.

By that logic, international companies do a lot of business with the U.S., so I guess we don't need U.S. stocks…

Similarly, there have been periods where a global portfolio outperformed a U.S. portfolio. During the period 1970 to 2008, an equity portfolio of 80% U.S. stocks and 20% international stocks had higher general  and  risk-adjusted returns than a 100% U.S. stocks portfolio. Specifically, international stocks outperformed the U.S. in the years 1986-1988, 1993, 1999, 2002-2007, 2012, 2017, and 2022.

us vs international stocks

International small cap stocks have crushed the U.S. market historically, for example, as they're considered riskier, and investors are compensated for that greater risk. And this is just talking about performance. The volatility and risk reduction benefits are another conversation entirely, which is of huge significance for a retiree.

Notice how U.S. or international outperformance tends to be cyclical:

cyclical outperformance

If I were writing this in 2010 (or 1990, or 1980), we'd be talking about how a global portfolio beat a U.S. portfolio the previous decade. The important takeaway is that it's impossible to know when the performance pendulum will swing and for how long, much less how those time periods would match up with your personal time horizon and retirement date.

Moreover, U.S. stocks' outperformance on average over the past half-century or so has simply been due to increasing price multiples , not an improvement in business fundamentals. That is, U.S. companies did not generate more profit than international companies; their stocks just got more expensive. And remember what we know about expensiveness: cheap stocks have greater expected returns and expensive stocks have lower expected returns.

For U.S. investors, diversifying globally in stocks is also a way to diversify currency risk and to hedge against a weakening U.S. dollar, which has been gradually declining for decades. International stocks tend to outperform U.S. stocks during periods when the value of the U.S. dollar declines sharply, and U.S. stocks tend to outperform international stocks during periods when the value of the U.S. dollar rises. Just like with the stock market, it is impossible to predict which way a particular currency will move next.

Dalio and Bridgewater maintain that global diversification in equities is going to become increasingly important given the geopolitical climate, trade and capital dynamics, and differences in monetary policy. They suggest that it is now even less prudent to assume a preconceived bet that any single country will be the clear winner in terms of stock market returns.

In short, geographic diversification in equities has huge potential upside and little downside for investors.

I went into the merits of international diversification in even more detail in a separate post here if you're interested.

Bogleheads 3 Fund Portfolio Benefits

Taylor Larimore, considered “King of the Bogleheads,” and co-author of The Bogleheads' Guide to Investing and The Bogleheads' Guide to the Three-Fund Portfolio , succinctly summarizes the Bogleheads 3 Fund Portfolio's benefits as follows:

  • No advisor risk such as incompetence or conflict of interest. These invariably lower your returns through market underperformance and/or greater fees.
  • No asset bloat , meaning new money entering a managed fund that impacts prices and lowers expected returns. Total market index funds can easily spread new money among thousands of stocks.
  • No index front running , meaning traders preemptively buying or selling securities before they're included or excluded in the index. Owning the total market means we're not exposed to that impact.
  • No fund manager risk , such as a manager leaving an active fund, which changes its future performance. Index funds don't pick individual stocks.
  • No individual stock risk . Picking individual stocks notoriously underperforms the market over the long term. We'll touch on some stats related to this later in the video.
  • No overlap . The 3 funds in this portfolio have zero overlap, so we're avoiding concentration and maximizing diversification.
  • No sector risk . Sector picking is just stock picking lite and is a source of uncompensated risk. A total market index fund already gets us exposure to every sector.
  • No style drift , which refers to a fund's divergence from its stated investment focus, such as for something like a mid-cap value fund that hones in on a narrow subsection of the market. Since we're buying the total market here, we don't have to worry about style drift.
  • Low tracking error . Tracking error refers to the difference between the fund's true value and its underlying index it's attempting to track. The types of funds we're using here famously have the lowest tracking error in the investable universe.
  • Above-average return , ensured by the fact that most active investors must necessarily lag the market after fees, taxes, and trading costs, as the market return is just the average of all investors. There's also a plethora of academic studies showing that most active managers underperform the market over the long term.
  • Simplified contributions and withdrawals because we only have 3 funds. Increasing that number means more time and effort spent depositing or withdrawing across them.
  • Consistency . For narrower index funds and actively managed funds, things like the manager, selection methodology, style, and risk profile change more often than you might suspect. We don't have to worry about those things, because again we're simply buying the total market.
  • Low turnover . Turnover refers to how much trading a fund is doing to replace its securities periodically. Higher turnover means more costs in the form of commissions, spreads, administrative costs, and taxes. Total market index funds have the lowest turnover.
  • Low costs . Fees are the best predictor of fund and portfolio returns, because it's one of the few things investors can control. Total market index funds, and specifically those from Vanguard, typically have the lowest fees in the game.
  • Maximum diversification . Diversification is said to be the only free lunch in investing. The 3-Fund Portfolio diversifies globally across multiple asset classes, which means lower risk for the investor.
  • Portfolio efficiency , which refers to the ratio of risk to return. Basically, total market index funds tend to offer the highest return for any given level of risk.
  • Low maintenance . In many cases, portfolio maintenance increases in direct proportion to the number of funds used. Keeping things simple here saves us time and effort in the future when it comes time to rebalance or withdraw.
  • Easy to rebalance . Rebalancing refers to periodically bringing the portfolio back to one's target asset allocation after that allocation shifts over time. For example, if stocks go up and bonds go down, our initial portfolio percentage breakdown has now shifted, so we want to sell some stocks and buy some bonds to bring things back into balance. This only needs to be done about once a year or every couple years. Having fewer funds makes this easier to do.
  • Tax efficiency . Index funds are among the most tax-efficient investment products because again, they have lower turnover and thus produce fewer taxable capital gains distributions. This is true for both the fund manager and the investor herself. Remember that we're always concerned with after-tax return.
  • Simplicity , which is vastly under-appreciated by most investors. This appreciation comes with experience. By simplifying your investments, you have more time for family and activities and other, more fulfilling pursuits than portfolio management. Arguably the best hidden benefit of this simplicity is that it cuts down on the investor's psychological stress and tracking error regret and thus makes it easier for the investor to stay the course. Another quote from Jack Bogle on this point is that “simplicity is the master key to financial success.”

Bogleheads 3 Fund Portfolio – Choosing Assets and ETFs

Let's explore the selection of assets and corresponding ETFs.

U.S. Stocks

For the 60% U.S. stocks position, we have several choices. You could choose to use the S&P 500 index, the total U.S. stock market, the Russell 1000 index, etc. To broadly diversify across U.S. stocks, I’m suggesting the use of a total U.S. stock market fund, to get some exposure to small- and mid-cap stocks, which have outperformed large-cap stocks historically due to the Size factor premium . Vanguard's total U.S. stock market ETF is VTI.

International Stocks

Similarly, for the 20% allocation to international stocks, we can use a total international stock market fund like Vanguard's VXUS. This ETF covers both ex-US Developed Markets and Emerging Markets at their global market weights.

For bonds , the obvious and popular choice is a total U.S. bond market fund, but since we know  treasury bonds are superior to corporate bonds and since a total bond market fund is usually about 25-30% corporate bonds, I’m suggesting intermediate treasury bonds, which should roughly match the average duration of the total U.S. treasury bond market. At the time of writing, Vanguard doesn't offer a total U.S. treasury bond market fund, so we can use intermediate treasury bonds via VGIT.

Long-term bonds are likely too volatile – and too susceptible to interest rate risk – for older investors, and short-term bonds are too conservative for young investors at a 40% allocation, so intermediate-term bonds offer a happy medium that is suitable for most investors.

For that reason, my blanket recommendation for a one-fund, one-size-fits-most bond choice would be intermediate-term treasury bonds, which should roughly match the average maturity of the total treasury bond market.

That said, I'm actually a fan of the idea of putting the first 20% of your bond holding in long -term treasury bonds, especially if you're a young investor with a longer investing horizon. The higher volatility of long-term bonds is better able to hedge against stocks' downward movement. We'll illustrate this below. You can access long-term treasury bonds via Vanguard's VGLT. This ETF has an effective duration of about 18 years.

Investors can dial in a specific bond duration using a combination of different duration bond funds.

And remember, don't fear bonds at low, zero, negative, or rising interest rates, and don't fear long-term bonds .

Why No International Bonds?

The inclusion of international bonds in diversified portfolios and target date funds is a fairly recent occurrence. Until recently, costs of international bond fund products were prohibitive for retail investors, and international assets of all kinds were viewed with skepticism until about the 1990's. Vanguard didn't begin including international bonds in their target date funds until 2013.

The evidence seems to show that international bonds may offer a small diversification benefit in terms of credit risk on the fixed income side due to their low correlation with both U.S. stocks and U.S. bonds, but there’s no compelling reason to think it's any significant benefit. This potential diversification benefit is even less convincing for a portfolio that is not bond-heavy.

The legendary Larry Swedroe suggests , based on a 2014 Vanguard paper, that investing in foreign bonds may be prudent for reducing portfolio volatility if and only if the investor can do so with low fees and with currency hedging to eliminate currency risk. Without currency hedging, it's basically FOREX trading. Luckily, Vanguard's Total International Bond ETF (BNDX) satisfies those requirements.

Vanguard published another paper in 2018, proposing that “various local market risk factors (such as interest rates, inflation, and yield curves) have resulted in relatively low correlations of government bond yields across markets over the past 50 years, suggesting a diversification benefit to increasing the number of global markets in a fixed income allocation.” While the research is comprehensive, the tiny diversification benefit they illustrate is negligible in my opinion. Specifically, they showed that for a 60/40 portfolio during the period 1985-2013, diversifying internationally with fixed income resulted in a reduction of volatility as measured by standard deviation from 9.5 to 9.4, a reduction of 1%.

In short, there's no good reason to consciously avoid international bonds, but there's also no good reason to embrace them either; it's unlikely to help your portfolio, and it's unlikely to hurt it. Bogle suggested that “when there are multiple solutions to a problem, choose the simplest one.” Samuel Lee agrees , suggesting that utilizing international bonds appears to “be a case of diversification for the sake of diversification.”

If you still do want to incorporate international bonds, don't worry; that's just the Bogleheads 4 Fund Portfolio .

Bogleheads 3 Fund Portfolio Portfolio Historical Performance vs. S&P 500

The backtests below are for the period 1987-2019 showing variations of the Bogleheads 3 Fund Portfolio vs. the S&P 500. Portfolio 1 uses the prescribed total bond market. Portfolio 2 is my suggested variation using intermediate treasury bonds. Portfolio 3, particularly suitable for a younger investor or one who desires to assume slightly more risk, uses long-term treasury bonds.

bogleheads 3 fund portfolio performance vs s&p 500

As we'd expect, Portfolio 2 with treasury bonds achieves higher general and risk-adjusted returns (Sharpe), lower volatility, and smaller drawdowns than Portfolio 1 that uses the total bond market. Again, this is because corporate bonds are inherently more correlated to stocks.

Notice the much higher general and risk-adjusted returns and lower overall volatility of Portfolio 3 with long-term treasuries. It also has a smaller max drawdown. Again, this is due to their higher volatility that is better able to counteract stocks' downward movement:

bogleheads 3 fund portfolio drawdowns vs s&p 500

Bogleheads 3 Fund Portfolio ETF Pies for M1 Finance

Below are pies to use on M1 Finance for each of the 3 variations we've explored above, using an 80/20 asset allocation.

M1 Finance  is a great choice of broker to implement the Bogleheads 3 Fund Portfolio because it makes regular rebalancing seamless and easy, has zero transaction fees, allows fractional shares, and incorporates dynamic rebalancing for new deposits. I wrote a comprehensive review of M1 Finance here .

Canadian investors can use Questrade , and those outside North America can use  eToro .

M1 Finance currently has an account transfer promotion to earn up to $20,000 before March 31, 2024 as outlined below:

m1 finance transfer promo q1 2024

M1 also currently has a promotion for up to $500 when initially funding an investment account before March 31, 2024:

m1 bonus

Traditional – Total Bond Market

Using entirely low-cost Vanguard funds and the original prescription of a total bond market fund, we can construct an 80/20 allocation of the  Bogleheads 3 Fund Portfolio pie  like this:

You can add the this pie to your portfolio on M1 Finance by clicking  this link  and then clicking “Save to my account.”

Canadians can find the above ETFs on Questrade or Interactive Brokers . Investors outside North America can use eToro or possibly Interactive Brokers .

Intermediate Term Treasury Bonds

Using intermediate-term treasury bonds, the Bogleheads 3 Fund Portfolio becomes:

You can add this pie to your portfolio on M1 Finance by clicking  this link  and then clicking “Save to my account.”

Long Term Treasury Bonds

My preferred version is this one with long-term treasury bonds:

Which 3 Fund Portfolio do you prefer? What's your asset allocation? Let me know in the comments.

Are you nearing or in retirement? Use my link here to get a free holistic financial plan from fiduciary advisors at Retirable to manage your savings, spend smarter, and navigate key decisions.

Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com .

Disclosure:  I am long VTI and VXUS in my own portfolio .

Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here .

m1

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what is the bogle 3 fund portfolio

About John Williamson, APMA®

Analytical data nerd, investing enthusiast, fintech consultant, Boglehead, and Oxford comma advocate. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit .

Reader Interactions

what is the bogle 3 fund portfolio

September 23, 2023 at 1:46 pm

Any drawback in doing 80% VT instead of 60% VTI and 20% VTXUS? Something like 80% VT and 20% VGIT would be even simpler and possibly provide even more diversification?

what is the bogle 3 fund portfolio

September 29, 2023 at 9:23 pm

Fine to simplify with VT, but in taxable you wouldn’t get foreign tax credit.

what is the bogle 3 fund portfolio

May 20, 2023 at 3:36 pm

John, thank you for this amazing article, excellent work!

What allocation would you suggest for a Boglehead 3 fund believer who’s under 40 years of age (we’re in our 30’s)? I noticed you suggested avoiding bonds till the age of 40 which I do agree with. With that said, what do you suggest replacing the bond allocation with till the age of 40? Do you suggest a bond proxy such as dividend or value stock index? Or, would you simply increase the allocation to VXUS and VTI? If so, what type of portfolio allocation percentages would you recommend for a Boglehead’s under the age of 40 and why?

May 21, 2023 at 1:39 pm

Thanks, Matthew. Unfortunately I can’t provide personalized advice here. I actually don’t really subscribe to the “no bonds” idea, but most do that. There would be nothing to “replace” bonds; the idea would just be have 100% stocks. But many don’t have the risk tolerance for that. I myself am in my 30’s too and have 10% in long term treasury bonds. You may find my rant on them here useful in describing my own portfolio.

what is the bogle 3 fund portfolio

January 21, 2023 at 10:18 am

Why do they prefer BND over the objectively better VGIT?

January 21, 2023 at 2:44 pm

BND tends to be the default rec for Bogleheads because it’s the total bond market. Many don’t realize the nuances of treasuries vs. corporates.

what is the bogle 3 fund portfolio

October 23, 2022 at 10:35 pm

I am 60 and work part time. My home home paid for, and I have no debt but have never invested, and I am not retired.

My plan to work as long as it is possible. Do you recommended I open a Vanguard 2035-2040 TDF and max it out every year? Thank you and go easy on me.

what is the bogle 3 fund portfolio

September 1, 2022 at 9:42 pm

Is Fidelity’s FUAMX a good alternative to VGIT?

September 3, 2022 at 1:08 am

Yes. FUAMX is slightly longer duration.

what is the bogle 3 fund portfolio

April 24, 2022 at 1:26 pm

Is the 3 fund portfolio the best for someone who has a 5 year retirement time horizon and does not want to take too much risk in the present (2022) climate?

Thanks for your sensible approach and recommendations.

what is the bogle 3 fund portfolio

April 10, 2022 at 3:08 am

Regarding the international bond findings, I noticed the studies suffer recency bias. They start in 1985, there was a bond bull market since. They could’ve included the 60s and 70s. It still wouldn’t be perfect as the modern world, all capital markers, are summed up as liberal democratic, free market US and has been a secular US bull market. But I won’t be this level of realistic because it is too much for most people. I just posit that while we don’t know if great geopolitical schisms happen if transborder ownership would even be possible, diversifying with international bonds may provide some protection or added return.

As for the home country bias, I feel Americans have had home country negative bias recently. It’s true that the US is half the world by market cap, but I feel free markets have operated best and most efficiently in the US, with the free world coming in 2nd. Now this can revert on its head, but still

April 12, 2022 at 10:26 pm

Bonds were callable before 1985.

what is the bogle 3 fund portfolio

December 28, 2021 at 10:38 am

To avoid the home country bias, would it be advisable to split the stocks evenly for both US and international? So for instance 40% VTI, 40% VXUS, 20% VGLT? Is there a reason your suggested portfolio overweighed US stocks?

Thanks – I really appreciate your site and work!

December 29, 2021 at 4:56 pm

Sounds reasonable to me.

January 3, 2022 at 5:10 pm

Thanks! Curious, is there a reason your suggested portfolios have a much stronger US weight vs international?

January 3, 2022 at 5:46 pm

Most prefer that.

December 7, 2021 at 10:15 pm

I have finally chosen the Bogleheads approach after keeping myself up at night worrying about my stock picks.

I find it curious that you have your allocations set to 60/20/20 whereas most other websites suggest 50/30/20. Is there a particular reason why you chose to ‘overweight’ US stocks? Many of your other articles advocate for matching market weight.

December 7, 2021 at 11:34 pm

Somewhat arbitrary. Investors can choose themselves. Most feel good with home country bias.

what is the bogle 3 fund portfolio

December 7, 2021 at 12:30 am

Hi John, I see you have not included a levered up version of the Boglehead portfolios (like for the AWP and Neapolitan ones). Is that because you don’t recommend it? I would be interested in your thoughts on using Portfolio 3 (above) in a leverage strategy.

Thanks for this website. Its absolutely awesome!! -Rudy

December 7, 2021 at 9:29 am

Thanks, Rudy! No great options for leveraged international funds. Would basically end up looking like HFEA .

what is the bogle 3 fund portfolio

December 5, 2021 at 8:26 am

Where can I see a comparison of the 3 fund vs 4 fund performance?

December 5, 2021 at 3:09 pm

This backtest provides a rough idea.

what is the bogle 3 fund portfolio

July 6, 2021 at 12:03 pm

I think it would be helpful if you would post quarterly updates of your Ginger Ale portfolio as matched against a Boglehead 3- Fund portfolio with the same about in bonds.

That way we could evaluate if the more complex portfolio is really worth it.

July 6, 2021 at 3:28 pm

Not a bad idea I guess, but they serve different purposes and are for different audiences. Factors are a long-term play, so something like rolling 5-10 year periods would make more sense than quarterly.

what is the bogle 3 fund portfolio

June 2, 2021 at 10:07 pm

I’m 66, retired, and getting ready to leave my Amerprise financial planner of 17 years. I’m looking at VT and VCSH for a two fund approach. If I were to add a 3rd fund It would probably be VNQ. Curious what you think, I’d be Looking at 60% VT, 10% VNQ,, and 30% VCSH.

June 3, 2021 at 8:12 am

Hey Rick. I can’t provide personalized advice, but I’m a fan of treasury bonds over corporate bonds , REITs don’t offer much of a diversification benefit since they’re not a distinct asset class (and their returns can be replicated with small cap value stocks and lower credit bonds), and I’d probably have some TIPS and/or short bonds in retirement to help protect against inflation .

what is the bogle 3 fund portfolio

March 20, 2021 at 3:48 am

https://www.ft.com/content/fdb793a4-712e-477f-9a81-7f67aefda21a

Like in this article, if you were betting on the lower performance of US equities/bonds for the next decade due to inflation, how would you change your portfolio?

My idea would be to replace bonds with commodities, include some crypto, and increase shares for emerging markets and value equities.

March 20, 2021 at 10:38 am

I’ve already got some TIPS in my portfolio .

We should expect lower future returns from bonds, but that doesn’t mean they’re not still the best diversifier for stocks . I also don’t try to time the market. Stocks in general do well from inflation. Separately, banks specifically do well from rising interest rates as they make more from loans, so maybe overweight Financials if that’s a concern.

I hate commodities .

what is the bogle 3 fund portfolio

February 13, 2021 at 3:09 pm

Hi John, Great read; thanks for breaking it all down. I currently have all of my money in the Vanguard 500 fund (VFIAX). I’m still learning and getting familiar with the Bogleheads philosophy.

Just one question – I’m a little confused as to why you didn’t get into the 500 fund’s run and final balance compared to the other 3. It ‘wins’ and finishes with a higher return right? I’m obviously still learning. Just trying to decide if I switch over to a 3 fund portfolio completely, or just add the 500 fund to the others and live with the overlap (is it that bad?)

Thanks again! Mike

February 14, 2021 at 10:23 am

Hey Mike, glad you enjoyed it.

The S&P 500 is used as a benchmark for comparison with most lazy portfolios. We wouldn’t expect the 3-Fund to beat it on pure total return, as stocks tend to outperform bonds. That’s not its intended purpose. The 3-Fund Portfolio is for someone who wants less volatility and risk – and thus likely a higher risk-adjusted return – than an S&P 500 index fund. As such, an investor seeking out the Bogleheads 3 Fund Portfolio does not want an S&P 500 index fund as their entire portfolio, and vice versa. Moreover, a 100% stocks portfolio would not be appropriate for a retiree.

Thus, the “winner” is subjective and personal in this case. The S&P 500 had better general returns over the period, but the 3 Fund had better risk metrics such as volatility and max drawdown. As usual, it comes down to time horizon and personal risk tolerance.

Had you needed to withdraw anytime between 2008 and 2012, the 3-Fund would have come out ahead with higher general returns as well.

If you read my post on asset allocation , I advocate for the same thing you suggested – going 100% stocks for a while until about age 40.

Hope this clears things up!

what is the bogle 3 fund portfolio

January 23, 2022 at 12:52 am

I had the same question so thanks for answering, John. I’m currently 75% S&P 500 index so this information about risk management in diversification is very helpful. I am in the process of rebalancing now and look forward to many great years in retirement. 🙂

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The 3-Fund Portfolio

Living the simple investment life.

what is the bogle 3 fund portfolio

3 Is Company

Three colors: red, white, and blue. Three funds:

, those are all that an American investor needs.

All right, he doesn't actually mention the U.S. flag. That was my addition, this being a July 4 column. However, Taylor's new book, " The Bogleheads' Guide to the Three-Fund Portfolio ," is less topical. It is intended to apply not only to each day of the year, but for many years to come. In that task, it succeeds. The publication is as timeless as anything that advocates specific funds can be.

For one, Taylor's suggested funds are passive, meaning that they will not change their ways, even as their portfolio managers come and go. Also, those three indexes are very broad, capturing 1) the entire U.S. stock market, 2) all major non-U.S. equities, and 3) most investment-grade domestic bonds, respectively. That breadth makes their investment characteristics highly stable. Finally, the sponsor is Vanguard. It isn't going anywhere.

You likely can guess the reasons that Taylor gives for his recommendations:

1) Extremely low costs 2) Simplicity 3) Diversification 4) Ease of monitoring

To that final item, Taylor writes, "I probably spend about an hour a year managing my stay-the-course portfolio. I leave it to you to imagine what you can do with all the time you will be saving investing in this way." (Subversive words, Mr. Larimore. Where would Morningstar MORN be if all investors thought like you?)

Allocating Assets The proportions of the three funds are up to the buyer. When it comes to asset-allocation suggestions, some investment writers invoke science and some do not. Taylor does not.

For the stock vs. bond decision, he invokes a well-known rule of thumb: Consider placing your age in bonds, with the rest in stocks. That, naturally, is a starting point. The aggressive investor will dial up the equity percentage, while the conservative investor will notch it down. But prospective investors won't go too far wrong if they adopt the neutral position.

In advising how to divide among the stock funds, Taylor uses not one, but two rules of thumb. Vanguard advises investing at least 20% of one's equity assets outside the United States. In contrast, Taylor's guiding spirit, Vanguard founder Jack Bogle, regards 20% as a maximum position. Two esteemed parties, intersecting at but a single point. And that is Taylor's answer: 20%.

In Response I have no quarrels with Taylor's seemingly offhand approach to asset allocation. I have ample respect for the field's scientists (several of which are employed by Morningstar). The rigor that they bring is useful for understanding the implications of simple allocations, such as Taylor's, and essential for complex portfolios. One should not allocate among 12 asset classes solely with heuristics. Sweating through the details is required.

However, Taylor's portfolio has not 12 asset classes, but rather three. In addition, the questions raised by his three asset classes can't be solved by number crunching. How to allocate between stocks and bonds depends not only on individual risk tolerance but on market behavior. One 20-year period will yield a very different result than another. Similarly, despite quantitative analysts' best efforts, the "correct" amount for a U.S. investor to put overseas remains undiscovered. That decision is largely a matter of taste.

Where the three-fund portfolio's allocation can be criticized is for what it neglects. It covers its three asset classes (or four, depending upon how you regard small-company U.S stocks) extremely well. But the portfolio features no junk bonds; no directly held real estate; no commodities; and no alternative strategies. It is very much not the endowment model --that is, what most large foundations would consider to be best investment practices.

Individuals vs. Institutions That is not as much of a problem as would first seem.

To be sure, institutional investors are the industry's elite, being among the best-trained and best-staffed of professional managers. What's more, unlike most mutual funds (target-date funds being a notable exception), endowment funds are complete portfolios, rather than slices to fill an allocation. In that respect, they resemble a retail investor's holdings. Which suggests that where Yale's endowment fund goes, Yale's alums (along with all other individual investors) should follow.

That is true, to a point. The problem is that many institutional favorites are unavailable to the rank and file. For example, at last report, Yale had 16% of its assets in venture-capital funds and 15% in leveraged-buyout funds. Over time, that 31% stake figures to outgain the stock market, albeit while assuming somewhat higher risk and conceding liquidity. Such a percentage would be too high for most retail investors, but they likely would benefit from a smaller dose. No such luck. Those funds aren't sold to the masses.

Thus, for his book's audience--meaning me, and presumably you--Taylor's asset allocation is sufficient. Let's put it this way: It is a terrific starting point for novice investors and a perfectly sensible ending point for the experienced. Of course, there will always be those who seek more. For such investors, the three-fund portfolio would be a suitable core position, from which they could explore additional purchases.

A Modest Proposal Which brings me to a suggestion. The three-fund portfolio, to be sure, is simple to implement. But it would be simpler yet if it were a one-fund portfolio. It strikes me that Vanguard might do its investors a favor by bundling Taylor's three funds into a single offering: Vanguard Total Index Fund. Not total U.S. stock, nor total bond, not international stock, but rather "total index." All three of those asset classes combined, according to their global market-cap weighting. Then Taylor could write a new book, "The Bogleheads' Guide to the One-Fund Portfolio."

That task shouldn't take him long.

Postscript: Low-cost investing, it appears, brightens more than just financial health. Jack Bogle, famously, is 89 years old and going strong. (He currently is working on his 12th book.) Mr. Larimore is five years older yet, being born in 1924. The same year as the first mutual fund!

John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar's investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.

The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.

More on this Topic

Top 6 Portfolio Moves for 2024 Asset allocation adjustments to consider for the new year. Amy C. Arnott, CFA

5 Portfolio Lessons From 2023 Consider these key investing takeaways as you adjust your investment portfolio for 2024. Christine Benz

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what is the bogle 3 fund portfolio

  • Trading strategies

Bogleheads 3 and 4 Fund Portfolio: Backtest and Performance Analysis

Jack Bogle’s famous advice was to avoid searching for individual stocks, sectors, or markets that may perform better and simply invest in the entire market. This means using index funds to build a diversified portfolio. The Bogleheads 3 Fund Portfolio (global stocks, U.S. bonds) and Bogleheads 4 Fund Portfolio (global stocks, global bonds) are good examples of the approach. Let’s find out what they are about.

Boglehead 3 Fund Portfolio is a simple, low-cost investment strategy that consists of three index funds: a U.S. Total Stock Market Index Fund, an International Stock Market Index Fund, and a U.S. Total Bond Market Index Fund. Boglehead 4 Fund Portfolio adds Total International Bond Market Index Fund to the mix. Both portfolios aim to provide diversification and long-term growth, with a focus on minimizing costs .

In this post, we take a look at the Bogleheads 3 Fund Portfolio (global stocks, U.S. bonds) and Bogleheads 4 Fund Portfolio (global stocks, global bonds). We end the article with backtests of both portfolios.

Table of contents:

What is the Bogleheads 3 Fund Portfolio?

The Bogleheads 3 Fund Portfolio is a low-cost investment strategy that was popularized by the Bogleheads, a group of investors who follow the philosophy of investing legend Jack Bogle. The strategy involves investing in three index funds that provide broad exposure to the stock and bond markets. The three funds are:

  • U.S. Total Stock Market Index Fund : This fund provides exposure to the entire U.S. stock market, including small, mid, and large-cap stocks.
  • International Stock Market Index Fund : This fund provides exposure to stocks in developed and emerging markets outside of the U.S.
  • U.S. Total Bond Market Index Fund : This fund provides exposure to the entire U.S. bond market, including government and corporate bonds.

The Bogleheads 3 Fund Portfolio is designed to be a simple, low-cost, and diversified investment strategy. By investing in the three funds, investors can potentially capture the long-term growth of the stock and bond markets while reducing the risks associated with investing in individual stocks or bonds. The strategy is based on the idea of “buy and hold” investing, which involves making regular contributions to the portfolio and holding the investments for the long term.

How to Invest in a Bogleheads 3 Fund Portfolio

To invest in a Bogleheads 3 Fund Portfolio, follow these steps:

  • Open a brokerage account : Open an account with a brokerage firm that offers the index ETFs you need to construct your portfolio.
  • Choose your funds : Select a U.S. Total Stock Market Index Fund (such as Vanguard Total Stock Market- VTI), an International Stock Market Index Fund (such as Vanguard FTSE All-World ex-US – VEU), and a U.S. Total Bond Market Index Fund (Vanguard Total Bond Market – BND).
  • Determine your asset : Decide how much of your portfolio you want to allocate to each of the three funds. A common allocation is to have 50% of your portfolio invested in the U.S. stock market, 30% invested in the international stock market, and 20% invested in bonds.
  • Start investing : Start by investing a lump sum or setting up a regular contribution plan. If you’re starting with a small amount, consider using dollar-cost averaging to reduce the impact of market volatility.
  • Monitor and rebalance : Over time, the values of your index funds may change and your asset allocation may become imbalanced. Consider periodically rebalancing your portfolio to maintain your target allocation.

What are the Benefits of a Bogleheads 3 Fund Portfolio?

The Bogleheads 3 Fund Portfolio has several benefits, including:

  • Diversification : The portfolio provides exposure to multiple asset classes and markets, reducing the risk of investing in any one individual stock or market.
  • Low costs : By investing in low-cost index funds, investors can minimize the impact of expenses on their returns. This can result in a higher return over the long term.
  • Ease of use : The Bogleheads 3 Fund Portfolio is simple and straightforward, making it easy for investors to understand and implement.
  • Long-term growth potential : The strategy is based on the idea of “buy and hold” investing, which can potentially provide long-term growth for investors.
  • Consistency : The strategy is consistent with the philosophy of investing legend Jack Bogle, who advocated for low-cost and diversified investing.

What are the Risks Involved with a Bogleheads 3 Fund Portfolio?

While a Bogleheads 3 Fund Portfolio has several benefits, there are also some risks involved, including:

  • Market risk : The stock and bond markets are subject to fluctuations, so investing in a Bogleheads 3 Fund Portfolio does not guarantee a profit or protect against loss.
  • Inflation risk : The value of the portfolio can be eroded over time by inflation, especially if the portfolio is not regularly rebalanced.
  • Currency risk : The international stock market fund exposes investors to currency risk, which is the risk that changes in currency exchange rates will negatively impact the value of the portfolio.
  • Interest rate risk : The bond market is subject to interest rate risk, which is the risk that changes in interest rates will negatively impact the value of the bond portion of the portfolio.
  • Political risk : The international stock market fund exposes investors to political risk, which is the risk that changes in government policies or political events will negatively impact the value of the portfolio.

What Assets Does the Bogleheads 3 Fund Portfolio Include?

The Bogleheads 3 Fund Portfolio typically includes three types of low-cost index funds:

  • Total Stock Market Index Fund (for example, the ETF with the ticker code VTI): This fund provides exposure to the entire U.S. stock market and includes all types of companies, regardless of size or sector.
  • Total International Stock Market Index Fund (for example, the ETF with the ticker code VEU): This fund provides exposure to the global stock market and includes companies from developed and emerging markets.
  • Total Bond Market Index Fund (for example, the ETF with the ticker code BND): This fund provides exposure to the U.S. bond market and includes a variety of bonds with different maturities and credit qualities.

The goal of the Bogleheads 3 Fund Portfolio is to provide broad market exposure and diversification while minimizing costs and reducing the risk of investing in individual stocks. By investing in low-cost index funds, investors can potentially achieve long-term growth and reduce the impact of expenses on their returns.

How to Select the Right Funds for the Bogleheads 3 Fund Portfolio

To select the right funds for a Bogleheads 3 Fund Portfolio, consider the following steps:

  • Look for low-cost index funds : Choose funds with low expense ratios to minimize the impact of fees on your returns.
  • Choose a Total Stock Market Index Fund : Select a fund that tracks the entire U.S. stock market and includes a broad range of companies.
  • Choose a Total International Stock Market Index Fund : Select a fund that tracks the global stock market and includes companies from both developed and emerging markets.
  • Choose a Total Bond Market Index Fund : Select a fund that tracks the U.S. bond market and includes a variety of bonds with different maturities and credit qualities.
  • Consider the fund’s size and liquidity : Select funds that are large enough to be easily traded, and have a high level of liquidity to ensure that you can buy and sell shares without affecting the price.
  • Consider the fund’s tax efficiency : Select funds that are tax-efficient to minimize the impact of taxes on your returns.

All this considered, we believe VTI, VEU, and BND might be suitable.

Boglehead 3 allocations

John Bogle didn’t give specific recommendations on allocating the three different assets. In this article, we allocate 50% to US stocks, 30 to international stocks, and 20% to bonds.

What is the Bogleheads 4 Fund Portfolio?

The Bogleheads 4 Fund Portfolio is an investment strategy that includes four low-cost index funds to provide broad market exposure and diversification. The portfolio includes:

  • Total International Bond Market Index Fund ( for example, the ETF with the ticker code VXUS or IXUS): This fund provides exposure to the global bond market and includes bonds from both developed and emerging markets.

The goal of the Bogleheads 4 Fund Portfolio is to provide even greater diversification and include a mix of U.S. and international bonds. By investing in low-cost index funds, investors can potentially achieve long-term growth and reduce the impact of expenses on their returns.

How to Invest in a Bogleheads 4 Fund Portfolio

To invest in a Bogleheads 4 Fund Portfolio, follow these steps:

  • Determine your investment goals : Consider your risk tolerance, investment time horizon, and financial goals.
  • Choose low-cost index funds : Select funds with low expense ratios to minimize the impact of fees on your returns.
  • Allocate your investments : Decide how much of your portfolio to allocate to each of the four funds based on your investment goals and risk tolerance.
  • Make regular contributions : Consider making regular contributions to the portfolio to take advantage of dollar-cost averaging.
  • Monitor and rebalance : Regularly review and rebalance the portfolio to ensure it remains aligned with your investment goals and risk tolerance.

We believe VTI, VEU, BND, and VXIS/IXUS might be suitable.

What are the Benefits of a Bogleheads 4 Fund Portfolio?

The Bogleheads 4 Fund Portfolio offers several benefits, including:

  • Global diversification : The portfolio includes exposure to both U.S. and international stocks and bonds, reducing the impact of any single market or sector on your returns.
  • Low-cost investing : By investing in low-cost index funds, you can minimize the impact of fees and expenses on your returns.
  • Ease of management : The portfolio is relatively simple to manage and does not require frequent monitoring or rebalancing.
  • Potential for long-term growth : By investing in a diversified portfolio of low-cost index funds, you can potentially achieve long-term growth.

What Assets Does the Bogleheads 4 Fund Portfolio Include?

The Bogleheads 4 Fund Portfolio typically includes the following assets:

  • Total U.S. Stock Market Index Fund (VTI): This fund tracks the performance of the U.S. stock market as a whole, offering exposure to large, mid, and small-cap stocks.
  • Total International Stock Market Index Fund (VEU): This fund tracks the performance of international stocks, offering exposure to international companies and economies.
  • Total U.S. Bond Market Index Fund (BND): This fund tracks the performance of the U.S. bond market, offering exposure to a variety of U.S. bonds.
  • Total International Bond Market Index Fund (VXUS/IXUS): This fund tracks the performance of international bonds, offering exposure to bonds issued by international governments and corporations.

This portfolio typically seeks to provide exposure to a variety of asset classes and markets, allowing for diversification and the potential for long-term growth.

How to Select the Right Funds for the Bogleheads 4 Fund Portfolio

When selecting funds for the Bogleheads 4 Fund Portfolio, consider the following:

  • Type of fund : Choose the total stock market, bond market, international stock market, and international bond market funds.
  • Expense Ratio : Look for low-cost index funds with an expense ratio under 0.10%.
  • Fund Provider : Consider reputable and established fund providers with a strong track record.
  • Fund Objective : Make sure the funds align with your investment goals and risk tolerance.
  • Fund Performance : Review the historical performance of the funds, but keep in mind that past performance is not a guarantee of future results.

Boglehead 4 allocations

John Bogle didn’t give specific recommendations on allocating the four different assets. This article allocates 50% to US stocks, 30 to international stocks, 10% to bonds, and 10% to international bonds.

What is the Difference Between the Bogleheads 3 and 4 Fund Portfolios?

While both portfolios seek to provide diversified exposure to a variety of asset classes and markets and are based on the principle of passive investing and low-cost index funds, they differ in terms of the number of funds they include and the specific assets they hold.

The Bogleheads 3 Fund Portfolio consists of three funds: a Total U.S. Stock Market Index Fund, a Total International Stock Market Index Fund, and a Total U.S. Bond Market Index Fund.

On the other hand, the Bogleheads 4 Fund Portfolio consists of four funds: a Total U.S. Stock Market Index Fund, a Total International Stock Market Index Fund, a Total U.S. Bond Market Index Fund, and a Total International Bond Market Index Fund.

The Bogleheads 4 Fund Portfolio includes an additional fund that provides exposure to the international bond market, whereas the Bogleheads 3 Fund Portfolio does not.

Which Bogleheads Portfolio is Best for a Global Investor?

The Bogleheads 4 Fund Portfolio may be a better option for a global investor as it includes exposure to the international stock and bond markets. This provides a more diversified portfolio compared to the Bogleheads 3 Fund Portfolio, which only includes exposure to the international stock market.

However, both portfolios have their advantages and disadvantages, and the best option for a global investor will depend on their individual investment goals, risk tolerance, and other factors. It is important to consider the asset allocation, expense ratio, and historical performance of each fund in the portfolio before making a decision.

How to Create a Balanced Investment Mix with the Bogleheads Portfolios

To create a balanced investment mix with the Bogleheads portfolios, it is important to consider your individual investment goals, time horizon, and risk tolerance.

For a balanced mix, allocating a portion of your portfolio to each of the funds in the Bogleheads 3 or 4 Fund Portfolio is recommended, depending on which one you choose. A common allocation strategy is to invest in a ratio of approximately 60% stocks and 40% bonds.

How Market Conditions Affect the Boglehead Portfolios

Market conditions can have a significant impact on the performance of the Bogleheads portfolios, as they are invested in a mix of stocks and bonds, both of which can be affected by changes in market conditions. For example, in times of economic uncertainty or market volatility, stock prices may fall, which can negatively impact the stock components of the portfolios. Conversely, when the economy is growing and the market is stable, stock prices may increase, providing positive returns for the portfolios.

Bonds can also be affected by changes in market conditions, with changes in interest rates significantly impacting bond prices. In general, rising interest rates can lead to lower bond prices and lower returns, while falling interest rates can boost bond prices and returns.

It is important to keep in mind that the Boglehead4s portfolios are designed for long-term investing and market fluctuations are a normal part of the investment process. By staying disciplined and avoiding reactive decisions, investors can weather short-term market conditions and benefit from the long-term returns of a well-diversified portfolio.

Bogleheads 3 And 4 Fund Portfolio Backtest – Do They Work?

Let’s backtest both portfolios using the ticker codes mentioned in the article. We start with the Bogleheads 3 portfolio:

Bogleheads 3 portfolio backtest and performance

Trading rules.

what is the bogle 3 fund portfolio

The annual return is 7.6%, dividends are included and reinvested, and max drawdown is 28%.

Bogleheads 4 portfolio backtest and performance

We allocated 50% to VTI, 30% to VEU, 10% to BND, and 10% to IXUS. We got the following equity curve:

The annual return was 7.8%and max drawdown was 31%.

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How do I invest in a Bogleheads 3 Fund Portfolio?

The Bogleheads 3 Fund Portfolio is a low-cost investment strategy popularized by Jack Bogle. It consists of three index funds: U.S. Total Stock Market, International Stock Market, and U.S. Total Bond Market. Steps include opening a brokerage account, choosing specific index funds (e.g., VTI, VEU, BND), determining asset allocation, starting investments, and monitoring for periodic rebalancing.

What is the Bogleheads 4 Fund Portfolio and its benefits?

The Bogleheads 4 Fund Portfolio adds international bonds to the 3 Fund Portfolio, offering global diversification, low-cost investing, ease of management, and potential for long-term growth. The Bogleheads 4 Fund Portfolio adds international bonds to the 3 Fund Portfolio, offering global diversification, low-cost investing, ease of management, and potential for long-term growth.

How do market conditions affect Bogleheads portfolios?

Market conditions can impact performance; for instance, economic uncertainty or volatility may affect stock prices, and changes in interest rates can impact bonds. The backtest showed an annual return of 7.6%, dividends included and reinvested, with a maximum drawdown of 28%.

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Your Guide to the Bogleheads 3 Fund Portfolio

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Your Guide to the Bogleheads 3 Fund Portfolio

Whether you’re new to investing or want to expand your knowledge base, you’re likely to be interested in different investing strategies. One term you may have come across is the Bogleheads 3 Fund Portfolio. In this article, we’ll explore this type of portfolio to help you decide if this strategy could work for you.

Who are the Bogleheads?

The Bogleheads forum

The term “Bogleheads” is used to honor John Bogle, the Vanguard founder. The Vanguard Group is an asset management firm and the world’s biggest provider of mutual funds and the 2nd biggest exchange-traded funds provider.

Bogleheads are investment enthusiasts who are active on the Bogleheads forum, where financial news, theory and techniques are discussed. The forum has over 120,000 members and almost 2,000 posts are added each day, helping less experienced investors to develop their portfolios and the more experienced to discuss merits of different strategies. 

While Bogleheads is a forum community, there are actually a number of investment books and affiliated sites that discuss Bogleheads investing. 

What is the Bogleheads 3 Fund Portfolio?

Stock market index fund

There are several key principles ascribed to the Bogleheads investing approach. These include: 

Develop workable plans

Invest often and early

Never bear too little or too much risk

Avoid trying to time the market

Keep costs low

Use index funds when possible

Minimize taxes

Invest simply

Stay the course.

The Bogleheads 3 Fund Portfolio is designed to adhere to all of the above principles. It is a simple portfolio that comprises three broad asset classes: a U.S. total market index fund, an international total market index fund and a U.S. bond total market index fund. 

This portfolio operates on the idea that diversification within your portfolio will reduce volatility, maximize risk-adjusted return and provide protection against any “black swan” events, or events that are unexpected and have the potential for severe consequences.

For example, while the 2020 Coronavirus pandemic was a severe economic event, pandemics are not unique situations and they do occur. For this reason, COVID was not a black swan event. However, the September 11 terror attacks were a black swan, creating a ripple of uncertainty throughout the world. 

It is important to note that the Bogleheads 3 Fund does not use a one size fits all asset allocation prescription. You are encouraged to choose your own asset allocation according to your specific risk tolerance and time horizon. However, Jack Bogle suggested a ratio of 60/20/20 allocation, with 60% into U.S. stocks, 20% in international stocks and the final 20% into U.S. bonds. 

The Benefits of a 3 Fund Portfolio

According to leading Boglehead, Taylor Larimore, co-author of several Boglehead books, there are 20 benefits of a three fund portfolio . These include:

No advisory risk: Advisor risks, such as conflicts of interest or incompetence will invariably lower returns through greater fees and/or underperformance. 

No fund manager risk: Future performance can be impacted by managers leaving an active fund. However, index funds don’t pick individual stocks.

No individual stock risk: Over the long term, picking individual stocks is notorious for underperformance. 

No asset bloat: When new money enters a managed fund, it impacts prices and can lower the expected returns. Total market index funds are able to easily spread the new money across thousands of assets. 

No index front running: This means that traders can preemptively buy or sell securities before they are excluded or included in the index. Working within the total market eliminates exposure to this impact. 

No overlap: There is zero overlap in a three fund portfolio, so diversification is maximized and you can avoid concentration. 

No sector risks: Sector picking can be a source of uncompensated risk, acting as a lighter version of stock picking. With a total market index fund, you’ll already have exposure to every sector.

Low tracking error: Tracking error is the difference between the true value of the fund and the underlying index that it is attempting to track. The funds used in Bogleheads portfolio strategy have the lowest tracking error rates across the investment niche.

No style drift: This refers to divergence from the stated investment focus. For example, if you have a mid cap value fund that is focused on a narrow market subsection, there is a great risk of style drift. When buying the total market, there is no concern about style drift. 

Above average returns: This is ensured by the concept that most active investors lag the market after trading costs, fees and taxes. The market return is the average of all the investors in the market. 

Simplified transactions: Since there are only three funds, the contributions and withdrawals are simplified. It means less time and effort is needed to perform transactions across your assets. 

Greater consistency: With actively managed funds and narrower index funds, style, risk profile, selection methodology and even the manager can change more often than you may realize. When buying the total market, you don’t have to worry about these issues. 

Low turnover: The term turnover is used to describe how much a fund does to periodically replace its securities. When there is a higher turnover, it means more costs due to spreads, admin costs, taxes and commissions. Total market funds have the lowest turnovers. 

Lower costs: This follows on from the previous point, but total market index funds typically have the lowest fees and charges. 

Maximized diversification: The three fund portfolio provides diversification globally across different asset classes to lower investor risk. 

Efficiency of the portfolio: Total market index funds tend to offer the highest returns for given levels of risk. Since efficiency is determined by the risk/return ratio, you can be assured of great portfolio efficiency. 

Ease of rebalancing: Periodically, you need to bring a portfolio back to the target asset allocation as there is a shift over time. This is commonly known as rebalancing. Having fewer funds means that rebalancing only needs to occur once a year or even every couple of years. 

Low maintenance: Portfolio maintenance typically increases in direct proportion to the number of funds. By keeping things simple using three funds, it saves time and effort to maintain your portfolio. 

Tax efficiency: Index funds tend to be some of the most tax-efficient investment products, due to the lower turnover and fewer taxable capital gains distributions.

Simplicity: This should not be under-appreciated, but by simplifying your investments, you’ll have more time to manage other priorities in your life. It can also cut down on the psychological stress involved in maintaining your portfolio and the inevitable tracking errors that occur when you’re overextended. 

How to Choose Assets

New York Stock Exchange

Even if you plan on using a single fund, you need to decide the percentage you want to invest in stocks , choosing a fund that matches. Some of the assets you could explore include:

U.S. Stocks: 

As we discussed above, you’re aiming for a 60% U.S. stock position. There are several choices for this including the total U.S. stock market , which is advisable. However, you could also consider the S&P 500 Index, the Russell 1000 index and others. 

You are aiming to broadly diversify across U.S. stocks, so it is a good idea to consider the total U.S. stock market fund, which will provide some exposure to both small and mid cap stocks, which have historically outperformed large cap stocks. 

International Stocks:

Likewise, for your 20% allocation into international stocks, it is a good idea to look for a total international stock market fund. This will allow you to access offerings across the global stock market. Examples of these include Vanguard’s VXUS and the Fidelity FTIHX. 

The most popular and obvious choice for the bond allocation of a three fund portfolio is a total U.S. bond market fund. However, you will need to consider whether you want to lean more towards treasury bonds rather than weighing your portfolio on corporate bonds. 

You also need to consider volatility. Long-term bonds are too susceptible to risk for the interest rate for the older investor, while short-term bonds are likely to be too conservative for the younger investor. Therefore, a good compromise could be intermediate-term treasury bonds. These should match the average total treasury bond market approximately. 

International Bonds:

Another interesting point to note is the lack of inclusion for international bonds and there are a number of reasons for this. Until recently, international bonds were not included in diversified portfolios or target date funds. This is likely to be due to these products being cost-prohibitive and a large amount of skepticism about the products. 

Generally speaking, international bonds may only offer small diversification benefits due to a low correlation between U.S. stocks and U.S. bonds. The potential diversification benefits are less convincing when your portfolio is not bond heavy. 

So, if you’re sticking to the 60/20/20 Bogleheads 3 fund portfolio approach, it is best to give international bonds a miss. 

The Bogleheads 3 fund portfolio is described as a lazy investing method, simplifying the process to appeal to investors who want to minimize management and lower risk. Of course, while there is a massive community that is dedicated to the Bogleheads approach, there are other investing experts who disagree with this approach. 

So, as with any investment decision or strategy, it is important to assess the benefits and risks for yourself. You will need to evaluate your investing goals, risk aversion and approach to determine if the three fund portfolio could be a good fit for you.

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Lorraine currently lives in sunny southern Spain. She is a finance writer with past experience in sales, marketing, and management.

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Bogleheads Three-fund Portfolio

The three-fund portfolio is a portfolio popularized by Jack Bogle fans (boggleheads). It uses only three fundamental asset classes: a U.S total stock market fund, a total international stock market fund, and a total bond market fund. The portfolio could be replicated using three low-cost ETFs.

Asset Allocation

Performance.

The chart shows the growth of an initial investment of $10,000 in Bogleheads Three-fund Portfolio , comparing it to the performance of the S&P 500 index or another benchmark. All prices have been adjusted for splits and dividends. The portfolio is rebalanced Quarterly

The earliest data available for this chart is Jul 26, 2007, corresponding to the inception date of VEA

As of Jan 13, 2024, the Bogleheads Three-fund Portfolio returned -0.26% Year-To-Date and 7.62% of annualized return in the last 10 years.

Monthly Returns Heatmap

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The Sharpe ratio of Bogleheads Three-fund Portfolio lies between the 25th and 75th percentiles. It indicates that the portfolio's risk-adjusted performance is in line with the majority of portfolios. This suggests a balanced approach to risk and return, which might be suitable for a broad range of investors.

Dividend yield

Bogleheads Three-fund Portfolio granted a 2.29% dividend yield in the last twelve months.

Expense Ratio

The Bogleheads Three-fund Portfolio has an expense ratio of 0.04% which is considered to be low. Below you can find the expense ratios of portfolio funds side-by-side and effortlessly compare their relative costs.

Risk-Adjusted Performance

This table presents a comparison of risk-adjusted performance metrics for positions. Risk-adjusted metrics are performance indicators that assess an investment's returns in relation to its risk, enabling a more accurate comparison of different investment options.

Asset Correlations Table

Drawdowns chart.

The Drawdowns chart displays portfolio losses from any high point along the way.

Worst Drawdowns

The table below displays the maximum drawdowns of the Bogleheads Three-fund Portfolio . A maximum drawdown is a measure of risk, indicating the largest reduction in portfolio value due to a series of losing trades.

The maximum drawdown for the Bogleheads Three-fund Portfolio was 47.74% , occurring on Mar 9, 2009 . Recovery took 539 trading sessions.

Volatility Chart

The current Bogleheads Three-fund Portfolio volatility is 2.63% , representing the average percentage change in the investments's value, either up or down over the past month. The chart below shows the rolling one-month volatility.

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How to Build the Boglehead 3-Fund Portfolio

The Boglehead 3-fund portfolio has become one of the most popular investment portfolios among DIY investors because it is easy to understand and implementation is straightforward.

For this reason, it’s also sometimes called a lazy portfolio or lazy 3-fund portfolio because it’s simple and easy to execute.

The Boglehead 3-fund portfolio consists of a:

  • US stock market index fund
  • international stock market index fund, and
  • bond market index fund

The specific funds you choose will depend on the broker or investment platform you’re using (e.g., Vanguard, Fidelity, etc.), but there are many options available that will fit the bill.

The funds often come in the form of an ETF , which are cheapest, or in the form of a mutual fund .

Allocations in the 3-fund portfolio

Once you’ve chosen your three index funds, all you need to do is decide how much money you want to allocate to each one.

A common split is 60/30/10, with 60 percent in stocks , 30 percent in bonds , and 10 percent in cash (e.g., savings account, money market account).

But you can adjust this to suit your own risk tolerance and investment goals.

For example, if you’re retired, looking for income and are more concerned about capital preservation, you might want to allocate a larger percentage to bonds.

Or, if you have a longer time horizon and are willing to take on more risk, you could invest a higher percentage in stocks.

The Boglehead 3-fund portfolio is a simple way to build a diversified investment portfolio with just three index funds.

It’s suitable for both beginner investors and experienced DIY investors alike. So if you’re looking for an easy way to invest without having to choose individual stocks or manage your own portfolio, this could be the right option for you.

There is a lot of value in having a simple portfolio , even for financial professionals.

Vanguard ETFs for the 3-fund portfolio

The three Vanguard ETFs that could work for the 3-fund portfolio include:

  • Vanguard S&P 500 ETF (VOO)
  • Vanguard Total International Stock ETF (VXUS)
  • Vanguard Total Bond Market ETF (BND)

Fidelity ETFs for the 3-fund portfolio

The three Fidelity ETFs that could work for the 3-fund portfolio include:

  • Fidelity ZERO Large Cap Index Fund (FNILX)
  • Fidelity ZERO Extended Market Index Fund (FZIPX)
  • Fidelity Government Income Fund (FGOVX)

3-fund portfolios from other providers

Other providers also offer index funds that could work for a 3-fund portfolio. Some examples include:

  • Schwab US Broad Market ETF (SCHB)
  • iShares Core S&P 500 ETF (IVV)
  • SPDR S&P 500 ETF (SPY)

How has the 3-fund portfolio performed over time?

Given there’s no official allocation associated with the 3-fund portfolio, there’s no easy way to say how it’s performed.

What we can do is take different example allocations and look at their performance over time.

Let’s look at two example portfolios.

Portfolio Allocations

Portfolio returns.

Portfolio 2, which has more bonds, has lower returns but has better risk-adjusted returns , as evidenced through lower Sharpe and Sortino ratios, as well as lower drawdowns and less volatility .

Portfolio Growth and Annual Returns

How has the 3-fund portfolio performed over time?

Annual returns of the three fund categories:

How has the 3-fund portfolio performed over time?

The chart below illustrates Portfolio 2’s shallower drawdowns, especially during the dot-com crash from 2000-02 and the 2008 financial crisis:

what is the bogle 3 fund portfolio

Drawdowns for Historical Market Stress Periods

Portfolio return and risk metrics, boglehead 3-fund portfolio faqs, what is the boglehead 3-fund portfolio.

The Boglehead 3-fund portfolio is a simple, low-cost portfolio that consists of just three index funds.

It’s suitable for both beginner investors and experienced DIY investors alike.

Does the Boglehead 3-fund portfolio outperform the stock market?

On a risk-adjusted basis, it will tend to do so given the bond portion provides diversification .

The international stock portfolio also helps diversify the US stocks portion on the equity side.

What are some Boglehead 3-fund portfolio ETFs?

There are many different Boglehead 3-fund portfolio ETFs available from different providers.

Some examples include Vanguard S&P 500 ETF (VOO), Vanguard Total International Stock ETF (VXUS), and Vanguard Total Bond Market ETF (BND).

Can I lose money in the Boglehead 3-fund portfolio?

As with any investment, there’s always a risk you could lose money.

However, over the long term, the Boglehead 3-fund portfolio has outperformed the stock market on a risk-adjusted basis.

How do I choose the right Boglehead 3-fund portfolio for me?

The best way to choose the right Boglehead 3-fund portfolio for you is to consider your investment goals and risk tolerance.

For example, if you are retired and more focused on generating income, you might want to allocate a larger percentage to bonds.

What is the Boglehead 3-fund portfolio asset allocation?

There is no official Boglehead 3-fund portfolio asset allocation, as it’s all a matter of discretion.

The basic concept of the 3-fund portfolio is to allocate to the basic framework of domestic stocks, international stocks, and bonds.

However, a common split is 60 percent stocks, 30 percent bonds, and 10 percent cash or shorter-term bonds.

In other words, being analogous to a 60/40 portfolio .

Is the 3-fund portfolio good for diversification?

It’s okay, but not ideal in terms of balancing.

The 3-fund portfolio doesn’t shed insight on allocation, but most concentrate their money in stocks and have the bulk of their risk in stocks.

We’ve written on the idea of balancing portfolios better in other articles.

  • The Math Behind Portfolio Diversification
  • How to Balance Risk to Achieve More Return Per Each Unit of Risk
  • Building a Balanced Portfolio with Options
  • Building a Balanced Portfolio with VRP Overlay

What are some Boglehead 3-fund portfolio alternatives?

Some Boglehead 3-fund portfolio alternatives include the 4-fund portfolio and the 5-fund portfolio.

These portfolios add additional diversification by including small cap value and real estate investments, such as REITs .

Some versions also might include commodities or gold to help provide exposure to more so-called hard assets.

Alternative portfolios might also provide exposure to inflation-indexed bonds , such as TIPS.

As with anything related to trading or investing, there are lots of different portfolio approaches you can try .

The Boglehead 3-fund portfolio is just one option that you might want to consider, especially for those who want to keep things simple.

What is the Boglehead 3-fund portfolio withdrawal rate?

The Boglehead 3-fund portfolio withdrawal rate is the percentage of your portfolio that you can safely withdraw each year without running out of money.

A common rule of thumb is the 4 percent rule , which says you can withdraw 4 percent of your portfolio value each year without having to worry about depleting your savings.

So, for example, if you have a $100,000 Boglehead 3-fund portfolio, you could withdraw $4,000 per year or a little over $300 per month without running out of money.

Of course, this is just a general guideline and your actual withdrawal rate may be higher or lower depending on your specific circumstances.

What is the Boglehead 3-fund portfolio rebalancing?

Rebalancing is the process of resetting your asset allocation back to your original target percentage.

For example, say you originally allocated 60 percent of your Boglehead 3-fund portfolio to domestic and international stocks, 30 percent to bonds, and 10 percent to cash.

Over time, as the stock market goes up and down, your asset allocation will naturally drift away from your original targets.

Rebalancing simply means selling some of your winners (assets that have gone up in value) and buying more of your losers (assets that have gone down in value) to get back to your original targets.

Rebalancing can be done on a regular basis, such as once a year, or when your asset allocation gets out of whack by a certain percentage.

For example, you might rebalance when your stocks go up to 70 percent of your portfolio (sell some to buy bonds) or down to 50 percent (sell bonds to buy stocks).

What is the Boglehead 3-fund portfolio return?

The Boglehead 3-fund portfolio return is the percentage of your investment that you earn each year from interest and dividends .

It does not include capital gains or losses from selling assets.

The Boglehead 3-fund portfolio return will depend on the specific investments you hold and the current market conditions.

In general, stocks have outperformed other asset classes over the long run.

However, there have been periods where bonds or even cash have done better than stocks.

Returns are also affected by things like inflation and fees.

What is the Boglehead 3-fund portfolio expense ratio?

The Boglehead 3-fund portfolio expense ratio is the percentage of your investment that is charged in annual fees by the fund managers.

For example, if you have a Boglehead 3-fund portfolio with an expense ratio of 0.5 percent, that means you will pay $50 in annual fees for every $10,000 you invest.

Expense ratios can vary widely, from as low as 0.1 percent to more than 2 percent for actively managed funds.

Generally, index funds have lower expense ratios than actively managed funds.

Should I allocate less money to bonds than stocks in the 3-fund portfolio as I get closer to retirement?

Your asset allocation will depend on your investment goals, risk tolerance, and time horizon.

In general, stocks are considered to be more volatile than bonds, so a higher percentage allocation to stocks will result in a higher potential return, but also a higher risk of loss.

Bonds are considered to be less volatile than stocks, so a lower percentage allocation to bonds will result in a lower potential return, but also a lower risk of loss.

What is the Boglehead 3-fund portfolio stock allocation?

The Boglehead 3-fund portfolio stock allocation is the percentage of your investment that is allocated to stocks.

For example, if you have a Boglehead 3-fund portfolio with an asset allocation of 30 percent domestic stocks, 30 percent international stocks, and 40 percent bonds, that means 60 percent of your overall investment will be in stocks.

As mentioned, your allocation to equities will depend on your investment goals, risk tolerance, and time horizon.

What is the 3-fund portfolio bond allocation?

The Boglehead 3-fund portfolio bond allocation is the percentage of your investment that is allocated to bonds.

For example, if you have a 3-fund portfolio with an allocation of 60 percent stocks and 40 percent bonds, then you’d have a fairly standard 40 percent allocation to fixed income.

In general, bonds are considered to be less volatile than stocks, so a lower percentage allocation to bonds will result in a lower potential return, but also lower drawdowns.

What is the Boglehead 3-fund portfolio equity premium?

The Boglehead 3-fund portfolio equity premium – also known as the equity risk premium – is the difference between the returns of stocks and bonds.

For example, if over the past 10 years stocks have returned an average of 7 percent per year and bonds have returned an average of 3 percent per year, then the equity premium would be 4 percent.

This equity premium is one reason why stocks are considered to be riskier than bonds.

What is the Boglehead 3-fund portfolio Sharpe ratio?

The Boglehead 3-fund portfolio Sharpe ratio is a measure of risk-adjusted return.

It is calculated by dividing the portfolio’s excess return (the difference between the portfolio’s return and the risk-free rate ) by the portfolio’s standard deviation of returns.

A higher Sharpe ratio indicates a better risk-adjusted return.

For example, if a portfolio has a return of 10 percent and a standard deviation of 20 percent, then its Sharpe ratio would be 0.5.

If another portfolio has a return of 15 percent and a standard deviation of 15 percent, then its Sharpe ratio would be 1.0.

The first portfolio has a higher return, but the second portfolio has a better risk-adjusted return.

The average Sharpe ratio of asset classes is around 0.2 to 0.3 over time.

If excess returns are too high or low relative to excess risks then it will change capital allocation decisions until those ratios get back into a more appropriate equilibrium .

What is the 3-fund portfolio standard deviation?

The Boglehead 3-fund portfolio standard deviation is a measure of volatility.

It is calculated by taking the square root of the sum of the squares of the returns.

For example, if a portfolio has returns of 1, 2, and 3 percent over three years, then its standard deviation would be sqrt((1^2 + 2^2 + 3^2)/3) = 1.732 percent.

A higher standard deviation indicates a more volatile investment.

What is the 3-fund portfolio tracking error?

The Boglehead 3-fund portfolio tracking error is a measure of how closely a portfolio tracks its benchmark.

It is calculated as the standard deviation of the difference between the portfolio’s return and the benchmark’s return.

For example, if a portfolio has a return of 10 percent and its benchmark has a return of 12 percent, then the tracking error would be 2%.

A lower tracking error indicates an investment that more closely tracks its benchmark.

What is the 3-fund portfolio information ratio?

The Boglehead 3-fund portfolio information ratio is a measure of active risk.

It is calculated by dividing the portfolio’s excess return (the difference between the portfolio’s return and the risk-free rate) by the tracking error.

For example, if a portfolio has a return of 10 percent and a tracking error of 2 percent, then the information ratio would be 5.

A higher information ratio indicates a more actively managed investment.

What is the 3-fund portfolio R-squared?

The Boglehead 3-fund portfolio R-squared is a measure of how much of the portfolio’s return can be explained by the return of its benchmark.

It is calculated as the correlation between the portfolio and its benchmark squared.

For example, if a portfolio has a correlation of 0.6, then the R-squared would be 0.36 (the square of the correlation between the two returns).

A higher R-squared indicates a more closely tracked investment.

What is the 3-fund portfolio alpha?

The Boglehead 3-fund portfolio alpha is a measure of how much of the portfolio’s return is due to active management.

It is calculated as the difference between the portfolio’s return and the return of its benchmark, adjusted for risk.

For example, if a portfolio has a return of 10 percent and its benchmark has a return of 12 percent, then the alpha would be minus-2 percent.

A positive alpha indicates that the portfolio has outperformed its benchmark, while a negative alpha indicates that the benchmark has outperformed the portfolio.

What is the 3-fund portfolio beta?

The Boglehead 3-fund portfolio beta is a measure of the portfolio’s volatility relative to its benchmark.

It is calculated as the correlation between the portfolio and its benchmark.

The formula for calculating beta is the covariance of the return of an asset with the return of the benchmark, divided by the variance of the return of the benchmark over a certain period.

A higher beta indicates a more volatile investment.

Summary – Boglehead 3-fund portfolio

The Boglehead 3-fund portfolio is a simple, low-cost way to build a diversified investment portfolio.

It’s suitable for both beginner investors and experienced DIY investors alike. If you’re looking for an easy way to invest without having to choose individual stocks or excessively manage your own portfolio, this 3-fund portfolio be an option to consider.

what is the bogle 3 fund portfolio

October 1, 2022

3 Fund Portfolio: A simple way to start investing

ETFs , Funds

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If you’re looking to grow your money without having to watch the markets daily or spending too much time researching individual companies, the 3 fund portfolio might just be for you.

This guide explains what a 3 fund portfolio is, help you decide if its a suitable portfolio for you and show you how to create one. We’ll also provide tips on how to optimize your portfolio for growth. So if you’re ready to get started, let’s get into it!

What is a 3 fund portfolio?

A three fund portfolio is a way to simplify investing for good returns, often associated with Vanguard’s founder, John Bogle and lazy portfolios.

It is a simple strategy for lazy ETF investors, all you need to do is to pick three types of ETFs that give you exposure to:

  • Total Stock Market Index Fund
  • Total International Stock Index Fund
  • Total Bond Market Fund

Together, these funds give investors a good mix of stocks and bonds which is designed to provide broad market exposure and stability. The three funds can be invested in different proportions to reflect an individual’s risk tolerance and investment goals.

The idea of a 3 fund portfolio is to balance between simplicity, control and tax efficiency.

The FIRE community seems to like this strategy as it allows them to grow their money with better tax efficiency. The most common allocations for ETF investors consist of the following ETFs:

  • S&P 500 ETF
  • Global Bond ETF
  • International Stocks ETF

What are the benefits of building a 3 fund portfolio?

3 fund portfolios are usually built using index funds or Exchange Traded Funds (ETFs) and offer the following benefits for investors:

1) Low cost

The use to ETFs and low cost index funds allow investors to maximize their capital for growth and performance.

2) Diversify your portfolio with little effort

By investing in markets rather than picking individual stocks, the 3 fund portfolio provides a diversified portfolio with little effort. And, it comes with lower risks and volatility.

3) Easy to rebalance and maintain

Another benefit of a three fund portfolio is that it can be easily rebalanced. This means that the mix of assets can be kept in line with an investor’s original goals and risk tolerance. For example, if the stock market has a prolonged period of gains, the portfolio can be rebalanced to sell some of the stocks and buy more bonds. This will help to maintain the desired asset allocation and provide some downside protection if the markets eventually turn lower.

Imagine the headache of trying to do this if you own a portfolio of more than 10 stocks.

Overall, a three fund portfolio can be a simple and effective way to invest in a wide range of assets. It can offer diversification, low costs, and the ability to rebalance.

What type of investors should consider building a 3 fund portfolio?

The 3 fund portfolio is a popular choice for many investors. It is especially useful for:

  • Beginners: aspiring investors who are new to the market,
  • Lazy or hands-off investors: those who do not wish to spend time picking their own stocks

FIRE practitioners who are new to investing also tend to start off with a 3 fund portfolio that lets them grow their money at a better rate than merely saving it in a bank account.

How to Build a Three-Fund Portfolio?

A typical 3 fund portfolio is made up of index funds or exchange-traded funds (ETFs) that track major market benchmarks. It usually includes the following asset classes:

  • Domestic stocks (eg. S&P 500 index fund)
  • International stocks (eg. Total International Fund)
  • Bonds (eg. US Bond Index Fund)

Although its just three funds, there are many different ways to construct a 3 fund portfolio. Let’s dive into the details:

Which Fund or ETF should you use for your 3 fund portfolio?

There are many options out there and you might feel overwhelmed. So, here’re compilations of popular funds and ETFs to help you narrow down your choices:

If you’re building a US based 3 fund portfolio:

Best Funds/ETFs to build a 3 fund portfolio

If you’re building a SG based 3 fund portfolio, you could consider the following:

  • Domestic stocks: SPDR STI ETF (ES3), Nikko AM STI ETF (G3B) or iShares MSCI Singapore ETF (NYSEARCA: EWS)
  • Bonds: ABF Singapore bond fund (ABF) or United Singapore Bond Fund
  • International stocks: All world ETFs (since there ain’t ETFs that includes international stocks without Singapore exposure, just go for all world ETFs)

Now that you have an idea of which fund or ETF you wish to invest in, its time to decide:

How to allocate your capital in a 3 fund portfolio?

Over the years, investors have come up with different variations of the 3 fund portfolio, tweaking the weightage of each component to suit their risk profile and investment objectives.

Here’re some popular variations:

i) Equal Weightage Portfolio

33% domestic stocks, 33% international stocks and 33% bonds

The no-frills and most balanced portfolio with moderate risk, the equal weightage portfolio is a simple way to start building a 3 fund portfolio. All you need to do is to divide your capital into 3 equal parts and invest accordingly.

Of course, you are free to tweak your allocation based on your needs:

  • 60/40 portfolio: 48% domestic stocks, 12% international stocks and 40% bonds
  • 40/60 portfolio: 32% domestic stocks, 8% international stocks and 60% bonds
  • 80/20 portfolio: 64% domestic stocks, 16% international stocks and 20% bonds
  • 20/80 portfolio: 48% domestic stocks, 12% international stocks and 80% bonds

Typically, if you prefer a more conservative 3 fund portfolio, you’ll want to reduce your exposure to stocks and increase your exposure to bonds.

Once you have your 3 fund portfolio going, you’ll need to maintain it on a regular basis; once a year is good enough.

Here’s how to maintain your 3 fund portfolio for better performance:

How to rebalance a 3 fund portfolio?

Rebalancing a portfolio involves selling the overweighed components and buying underweighted ones to bring your portfolio back to your ideal allocation breakdown.

Since simplicity is key to implementing the 3 fund portfolio, you shouldn’t try to over optimize your portfolio allocation. Instead, simply do a rebalancing on an annual basis.

A good day to rebalance your portfolio is on your birthday, since its the day you’ll rarely forget.

A 3 fund portfolio is a simple, easy to use investment strategy. It allows you to start growing your money with relatively lower cost and risk, while providing diversity and without the need to spend too much time studying the markets.

There are many different ways to set up your 3 fund portfolio, so it’s important to find the allocation that suits your risk profile and investment objectives.

Here’re some frequently asked questions, leave yours in the comments below.

Frequently Asked Questions about the 3 Fund Portfolio

What is the average return of a three-fund portfolio.

Returns of a 3 fund portfolio varies depending on your choice of Fund / ETF as well as your asset allocation per asset class.

Here’s a sample from PortfolioLabs based off a 3 fund portfolio with the following breakdown:

  • 50% Domestic Stocks, using Vanguard Total Stock Market ETF (VTI)
  • 30% International Stocks, using Vanguard FTSE Developed Markets ETF (VEA)
  • 20% Bonds, using Vanguards Total Bond Market ETF(BND)

The average return over the past 10 years was ~8.7%.

what is the bogle 3 fund portfolio

How much should I contribute to my 3 fund portfolio yearly?

This depends on your saving rate and investing goals.

The simple rule of time is that the more you invest earlier, the more time you’ll have for your money to grow.

How much cash do I need to setup my 3 fund portfolio?

With ETFs, these days you can start building a 3 fund portfolio with less than $1,000.

However, do take note of your brokerage fees as you do not want the fees to eat into your returns!

A good starting point would be a bigger sum like $15,000. You can start with $5,000 in each asset class, the cost of purchase should be less than 1% of your capital.

Which bond fund should I use for a 3 fund portfolio?

See table above .

What is John Bogle’s 3 fund portfolio allocation?

John Bogle ‘s recommended 3 fund portfolio allocation is 60% domestic stocks, 20% bonds, and 20% international stocks. This is designed to provide broad market exposure and stability, and can be easily rebalanced.

That said, if your risk appetite is low, this may be a little uncomfortable for your as 80% of your portfolio will be in stocks. If the stock market is down (like the current bear market), you’ll see a bigger drawdown. The opposite is true in a bull market.

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The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk

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what is the bogle 3 fund portfolio

The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk Hardcover – July 3, 2018

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  • Book Description
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Twenty benefits from the three-fund total market index portfolio.  

The Bogleheads’ Guide to The Three-Fund Portfolio describes the most popular portfolio on the Bogleheads forum. This all-indexed portfolio contains over 15,000 worldwide securities, in just three easily-managed funds, that has outperformed the vast majority of both professional and amateur investors.

If you are a new investor, or an experienced investor who wants to simplify and improve your portfolio, The Bogleheads’ Guide to The Three-Fund Portfolio is a short, easy-to-read guide to show you how.

From the Inside Flap

  • Eliminate a large handful of risks associated with other investing methods, including manager choice, individual stock and sector vulnerabilities, tracking error, and more
  • Avoid the most common ways investors lose money trying to make it, including stock picking, market timing, useless newsletters, and expensive advisors
  • Prepare yourself to invest real money by hearing from a diverse collection of everyday investors successfully using the approach, including model allocation strategies and tips

Follow the simple path to financial security in The Bogleheads' Guide to the Three-Fund Portfolio.

From the Back Cover

  • A five-step solution to securing wealth in Bull and Bear Markets
  • Actionable plans for capturing more market returns than many professional investors
  • Insights and commentary from celebrated and everyday Boglehead investors

Discover the stress-free approach to reaching your financial goals with The Bogleheads' Guide to the Three-Fund Portfolio.

About the Author

TAYLOR LARIMORE is a sage on the Boglehead forums for everyone who wants to discover "the Boglehead way." Crowned the "King of the Bogleheads" by Jack Bogle, he has spent more than seven decades in finance and investing, in such positions as revenue officer for the IRS, chief of the Financial Division for the Small Business Administration in South Florida, and a director of the Dade County Housing Finance Authority. He is co-author of The Bogleheads' Guide to Investing and The Bogleheads' Guide to Retirement Planning.

  • Print length 112 pages
  • Language English
  • Publisher Wiley
  • Publication date July 3, 2018
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  • ISBN-10 9781119487333
  • ISBN-13 978-1119487333
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Lazy Portfolio ETF

Lazy Portfolio ETF

Lazy permanent portfolios built with ETFs

Bogleheads Three Funds Portfolio: ETF allocation and returns

The Bogleheads Three Funds Portfolio is a Very High Risk portfolio and can be implemented with 3 ETFs .

It's exposed for 80% on the Stock Market.

In the last 30 Years , the Bogleheads Three Funds Portfolio obtained a 7.78% compound annual return , with a 12.41% standard deviation.

Asset Allocation and ETFs

The Bogleheads Three Funds Portfolio has the following asset allocation:

The Bogleheads Three Funds Portfolio can be implemented with the following ETFs:

Most of Lazy Portfolios are made of common components (asset classes), very simple and well defined. For a more complete view, find out the most common ETFs you can use to build your portfolio.

Portfolio and ETF Returns as of Dec 31, 2023

The Bogleheads Three Funds Portfolio guaranteed the following returns.

  • no fees or capital gain taxes.
  • a rebalancing of the components at every January 1st. How do returns change with different rebalancing strategies?
  • the reinvestment of dividends.
  • the actual US Inflation rates.

In 2023, the Bogleheads Three Funds Portfolio granted a 2.62% dividend yield . If you are interested in getting periodic income, please refer to the Bogleheads Three Funds Portfolio: Dividend Yield page.

Capital Growth as of Dec 31, 2023

The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living

Portfolio Metrics as of Dec 31, 2023

Metrics of Bogleheads Three Funds Portfolio , updated as of 31 December 2023.

  • Annualized Portfolio Return : it's the annualized geometric mean return of the portfolio.
  • Deepest/Longest Drawdown : a drawdown refers to the decline in value from a relative peak value to a relative trough. The deepest (or maximum) drawdown is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. The longest drawdown is the period observed from a peak to the subsequent peak with the greatest duration.
  • Longest negative period : it's the maximum period for which an overall negative return has been observed.
  • Standard Deviation : it's a measure of the dispersion of returns around the mean.
  • Sharpe Ratio : it's a measure of risk-adjusted performance of the portfolio. It's calculated by dividing the excess return of the portfolio over the risk-free rate by the portfolio standard deviation. The risk-free rate here considered is the 1-3 Mth T-Bill return.
  • Sortino Ratio : another measure of risk-adjusted performance of the portfolio. It's a modification of the Sharpe Ratio (same formula but the denominator is the portfolio downside standard deviation).
  • Ulcer Index : it's a measure of downside risk that quantifies the depth and duration of drawdowns in an investment portfolio.
  • Best/Worst 10Y returns : the best and the worst 10-year return over a time frame.
  • Rolling Returns : N-year returns over a time frame, calculated over all the available data source (best, worst, % of positive returns). Each rolling period, longer than the longest negative period , yielded a non-negative minimum return.
  • Safe Withdrawal Rate (SWR) : it's the percentage of the initial portfolio balance that can be withdrawn at the beginning of each month with inflation adjustment, without the portfolio running out of money in any case ( money amount withdrawal ). For instance: Your initial invested capital is 100.000$; withdrawal rate (annualized) is 4%. This means that, in the first month, you will withdraw 100.000 * 4% * 1/12 = 333.33$. The second month, you’ll withdraw 333.33$ plus the inflation monthly rate. You’ll continue adjusting your withdraw monthly for inflation.
  • Perpetual Withdrawal Rate (PWR) : it's the percentage of the initial portfolio balance that can be withdrawn at the beginning of each month with inflation adjustment, preserving the original invested capital, adjusted for inflation too.

Portfolio Components Correlation

Correlation measures to what degree the returns of the two assets move in relation to each other.

If you want to learn more about historical correlations, you can find out here how the main asset class are correlated to each other .

A drawdown refers to the decline in value from a relative peak value to a relative trough. A maximum drawdown is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained.

Rolling Returns

( more details )

A rolling return is a measure of investment performance that calculates the return of an investment over a set period of time, with the starting date rolling forward . This approach can provide a more accurate representation of the investment's historical performance and helps investors to evaluate the investment's consistency over time.

If you need a deeper detail about rolling returns, please refer to the Bogleheads Three Funds Portfolio: Rolling Returns page.

Seasonality

In which months is it better to invest in Bogleheads Three Funds Portfolio ?

Monthly Returns

This section provides a visual/tabular representation of the performance variability in the Bogleheads Three Funds Portfolio over time. It illustrates the distribution of monthly returns, showcasing the range and frequency of positive and negative returns.

  • VTI - Vanguard Total Stock Market (VTI) , up to December 2001
  • VEU - Vanguard FTSE All-World ex-US (VEU) , up to December 2007
  • BND - Vanguard Total Bond Market (BND) , up to December 2007

Portfolio efficiency

The following portfolios granted a higher return over 30 Years and a less severe drawdown at the same time.

Here's a list containing the Best Classic Portfolios , with the highest returns over 30 Years and Very High Risk categorization.

The Complete Guide to ETF Portfolio Management: The Essential Toolkit for Practitioners

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My Money Wizard

Demystifying the Magic of Financial Freedom

what is the bogle 3 fund portfolio

3 Fund Portfolio: The Lazy Investing Strategy that Crushes the Pros

September 17, 2018 By The Money Wizard 46 Comments

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3 fund portfolio

If we all locked ourselves in a room and HAD to agree on one statement before we could escape, what do you think that statement would be?

I’m guessing our prisoner situation would spark some heated debates. At some point, the pitchforks and flame torches might come out. But, after a few hours of wrestling and a black eye or two, I’d bet we could find one statement nobody dared to contend:

Hard work pays off.

In most areas of life, this is a perfectly reasonable statement. You’d be crazy to suggest otherwise.

Except, as it turns out, for when it comes to investing.

In fact, in the upside-down world of investing, all evidence points towards the opposite . In investing, study after study shows that the harder you work, the worse you do.

Have I lost you yet? Perfect.

Because today, I’m highlighting an investing strategy so simple that it just might work. In this mega post, I’m going to show how my favorite investing strategy – the 3 Fund Portfolio – can knock the socks off even the most hot shot money managers.

And then, I’m going to show you exactly how to do it.

What is a 3 Fund Portfolio?

Brace yourself for the boring definition of the year. A three fund portfolio is an investment portfolio which… consists of just three funds. *GASP*

More specifically, those three funds invest in the following asset classes.

  • International Stocks

How does the 3 Fund Portfolio work?

Well, a three fund portfolio doesn’t use any old fund. A proper three fund portfolio invests in the lowest cost index funds around, so you get broad diversification at the cheapest cost.

The result? Returns that are guaranteed to match the overall market, so you don’t have to worry about a boneheaded decision costing you thousands. (A boneheaded decision from yourself, or from your investment manager.)

Instead, you’ll cruise along earning average returns, which counter-intuitively places you above oh… about 99% of stock pickers .

And then, the Three Fund Portfolio takes things to the next level. By adding  multiple asset classes , you’re now diversified not just in the market itself, but across three (mostly) uncorrelated markets. This provides your cool self with protection against wild swings in any one individual market.

As the theory goes, if the United States stock market is shaken up by Americans defaulting on their oversized homes, Facebook creeping a little  too much on their users, or even robots trading too quickly for the market’s comfort, then maybe our market’s temporary decline can still be offset by Canada striking liquid gold with a new oil reserve, China showing promising growth, or Russia becoming a little less corrupt.

And of course, there’s the always the bond market, quietly working away to provide steady fixed income, and often moving in the opposite direction as stocks.

Over time, research shows this type of three-pronged attack can provide better risk adjusted returns than if you tried hitting a home run with any one stock choice or even any one index fund.

As the saying goes, there’s no such thing as a free lunch… Except for diversification.

But is that all this strategy has going for it?

Oh no… we’re just getting started with the awesomeness.

Advantages of a Three Fund Portfolio

1) Diversification – we just covered the basics, but it’s worth highlighting that the index funds in a typical Three Fund Portfolio track over 11,000 different stocks. You’ll have exposure to the largest companies in the United States to the smallest companies in China.

2) Low cost – The large index funds typically used to create a 3 Fund Portfolio are THE least expensive funds to own. Remember, small percentage changes in fees can cause thousands or even hundreds of thousands of dollar swings to our future wealth.

In a nutshell, low costs matter. Big time.

3) Easy Rebalancing – Rebalancing is the process of periodically adjusting portfolio allocations to make sure you’re still on target.

Imagine a traditional buy and hold investor, who may have 30+ companies to monitor. Even a traditional index fund investor might have a dozen different index funds, all performing basically the same purpose as what’s captured in a Three Fund Portfolio.

Compared to this, rebalancing a Three Fund Portfolio is insanely easy. (And even easier when using a free tool like Personal Capital for automatic monitoring.)

4) Simplicity – Put bluntly, the Three Fund Portfolio is easy to understand, easy to implement, and easy to monitor. Which is why it’s my overall favorite strategy for everyone ranging from total investing beginner to total money nerd.

Okay, so this all sounds pretty sweet. But what about the performance? Is this whole thing too simple?

Let’s take a look…

3 Fund Portfolio Performance

Narv Narvekor is by all measures, a brilliant financial mind. He received his MBA from the internationally renown Wharton School of Business before climbing to Managing Director of Equity Derivatives (fancy!) at JP Morgan. From there, he headed to Warren Buffett’s alma mater, Columbia University, where he led investing strategies for their entire endowment portfolio.

Today, he’s the CEO of Harvard’s massive $36 billion dollar investment portfolio. He works long days and long nights obsessed with finding great investments. So does his team of over 200 Harvard employees.

Mr. Narvekor and Harvard’s endowment fund aren’t unique, either. Universities all over the country employ teams of the country’s most brilliant, hard working investment professionals to manage their millions and billions of dollars of assets.

With all this fire power, you’d expect those endowment funds to post returns dwarfing what’s possible for puny investors like you and I.

In this great post , fellow blogger Ben Carlson compared a 3 Fund Portfolio strategy to the historical performance of over 800 college endowments.

His findings? The 3 Fund Portfolio smoked them all! (See below – Ben’s study called a 3 Fund Portfolio the Bogle Model, after Vanguard’s founder Jack Bogle.)

The fact that you and I could easily manage our portfolios better than Mr. Narvekor and his huge team at Harvard is surprising and encouraging, but not really unexpected.

Why? Because study after study shows that well over 80% of active fund managers fail to beat the market:

Unfortunately for our intro’s hypothetical prison friends who thought they finally agreed on something, when it comes to investing, hard work doesn’t actually pay off.

“But wait, that three fund portfolio vs. endowment comparison only covered the last 10 years. What about the rest of history?”

Great point. What sort of 3 Fund Portfolio performance can we expect if we go back further? As it turns out, that 6% performance of a Three Fund Portfolio is pretty typical.

  • The Wall Street Journal also measured the Three Fund Portfolio’s performance over a decade, and arrived at 7%.
  • PortfolioCharts.com went all the way back the 1970 and found the average return for a Three Fund Portfolio right around 6%, after accounting for inflation. (Going further back than 1970 presents some trouble, due to a slight roadblock about index funds not existing before 1970…)

If 6% doesn’t sound all too exciting, might I remind you of the rule of 72 ? If we earn 6% per year, we’re doubling our money every twelve years.

In other words, earning “just” 6% allows a lump sum of $100,000 to compound to $800,000 over a typical ~35 year investing career. Even with zero additional contributions!

To reach that 6% number, PortfolioChart’s analysis relied on a fairly standard 3 Fund Portfolio allocation… Hey, that brings me to my next point!

How to Choose a 3 Fund Portfolio Allocation

Okay, so we know the simple premise behind a Three Fund Portfolio. We want to choose three index funds, with each one representing the three main asset classes. (US Stocks, US Bonds, and International Stocks)

But how much of each of those three funds should we hold?

Well, that depends on you, more than anything.

  • How old are you?
  • Do you plan on withdrawing the money at any time in the near future, or are you just hoping to build an epic portfolio where you can live off the 4% rule  once you reach financial freedom?
  • And maybe most importantly, does the thought of your portfolio declining 40% in one year make you want to S#!T your pants??

These are important questions that no blog post can answer. But that’s not gonna stop me from trying!

Consider the following commonly used three fund portfolios:

Each one of those different 3 Fund Portfolios could be perfectly reasonable for three different investors.

So, let’s find your ideal 3 Fund Portfolio!

Step 1) Decide on a Stock vs. Bond Allocation

This is probably the most important decision in designing your Three Fund Portfolio.

Because bonds are more stable and tend to move in opposite direction than stocks, the higher percentage of bonds in your portfolio, the more protected you will be from that potentially pants s#!tting event. BUT, that safety comes with a trade off… bonds have historically averaged just a 3% return, versus the 7% historical return of stocks.

To make this decision simpler, we can rely on a few different rules of thumb:

The 100 Minus Your Age Rule: 

With this approach, you hold a percentage of bonds equal to your current age, and then allow stocks to make up the rest of your portfolio.

For example, a 20 year-old following this rule of thumb would hold 80% stocks and 20% bonds. By age 50, they’d adjust their portfolio’s allocation to 50% stocks and 50% bonds.

This certainly works for more cautious investors, but overall is a pretty conservative approach. With today’s low yields on bonds, plus humans living longer and longer, some notable investors have advised a slightly more aggressive modification…

The 110 (or even 120!) Minus Your Age Rule:

The same approach as before, but instead you’re holding a percentage of stocks equal to 110 (or 120) minus your age. Basic math hints at the effect here; we’ll hold a lower percentage of bonds throughout our entire lives, which means more emphasis on stocks.

Higher percentage of stocks = higher volatility, but also the potential for higher long term returns.

The 90/10 Rule: 

Warren Buffett shocked a lot of retirement planners in a 2013 letter, when he casually mentioned that when he dies, he wants his wife to hold 90% of his money in stocks and only 10% in bonds , no matter the age.

Step 2) Decide on a US Stock vs. International Stock Allocation

Your choice between US Stocks and International Stocks might not have as big of an impact on your long term performance, simply because:

  • Both are still under the “stocks” umbrella of asset types, so they’ll behave much more similarly than the naturally opposing nature of say, stocks vs. bonds.
  • As the world grows more and more interrelated, US Stocks find themselves more and more correlated to international stocks. If you need proof of this, just check out the worldwide impact the United States’ 2008 financial crisis had on international stock prices.

In any case, there’s certainly still a diversification benefit to building out that third piece of the 3 Fund Pyramid. And just like our last step, we can use a few long standing rules of thumb as our guiding light down this confusing road:

The World Economy Approach: 

Several famous investors suggest breaking down your stock holdings in the same proportions that they represent in the world economy.

If you have no idea what percentage of stocks make up the world economy, fear not! It’s actually pretty simple.

US Stocks represent roughly half of the world economy, while international stocks make up the rest. In this case, an investor would split the stock portion of their Three Fund Portfolio 50/50 between their chosen US Stock Market Index Fund and their chosen International Stock Market Index Fund.

(If you want to get extra-precise in this approach, Vanguard’s Total World Stock Index Fund ( VTWSX ) intentionally holds both domestic and international stocks in the exact proportion that they make up the world economy. Bonus! Your three fund portfolio just simplified down to just two!)

Vanguard’s 20-40% Suggestion:

Vanguard’s published research says 20% of your stock holdings is a good starting point for international exposure, and recommends going up to 40% for investors wanting more international exposure. Their own target retirement funds split 40% of their stock exposure in international funds.

Step 3) Tying it all together

Ultimately, the most common three fund portfolio split usually ends up around 60% stocks and 40% bonds, with a final breakdown as follows:

Of course, that’s not perfect for everyone. As always, it will depend on your outlook and goals.

On the more aggressive end of the spectrum, a 25 year old US Patriot using the 120-minus-age rule would be looking at a 3 fund portfolio like so:

And on the far more conservative side, a 50 year old using the 100 minus your age rule and diversifying heavily into international markets might consider a portfolio like so:

Chances are, you fit somewhere in between. The important part is choosing an allocation and sticking with it!

How to Actually Build a 3 Fund Portfolio (in less than 10 minutes!)

I realize that headline sounds like some kind of infomercial, but remember what we said about working hard not producing any better investing results?

That’s the whole point of this whole three fund portfolio thing. It really can be that simple!

Your toughest decision in building a three fund portfolio is simply which brokerage to use. I’m a huge fan of Vanguard , but any of the big guys have options that will work. And no matter who you choose, you can create an online account in about the same amount of time as signing up for Facebook.

Now what to do with your remaining five minutes?

Well, you just need to choose your allocation (we just figured that out above, remember?) and the specific funds to carry out that allocation. Here are my humble (and not-professional… don’t sue me!) opinions for your three funds.

How to build a three fund portfolio with Vanguard

  • US Stocks: Vanguard Total Stock Market Index Fund ( VTSAX )
  • International Stocks: Vanguard Total International Index Fund ( VTIAX )
  • Bonds: Vanguard Total Bond Market Index Fund ( VBTLX )

How to build a three fund portfolio with Fidelity

  • US Stocks: Fidelity ZERO Total Market Index Fund ( FZROX )
  • International Stocks: Fidelity ZERO International Index Fund ( FZILX )
  • Bonds: Fidelity US Bonds Index Fund ( FSITX )

How to build a three fund portfolio with Charles Schwab

  • US Stocks: Schwab Total Stock Market Index ( SWTSX )
  • International Stocks: Schwab International Index ( SWISX )
  • Bonds: Schwab US Aggregate Bond Index Fund ( SWAGX )

Building a three fund portfolio across multiple companies

What if you’re like me (and most other Americans) and your total portfolio is spread out across your work’s 401k, an IRA, and some after tax holdings?

Well, one of the beauties of the Three Fund Portfolio is it’s simplicity. With just three funds to manage, you can easily adjust and rebalance your three allocations across your different holding vehicles.

In other words, imagine your work’s 401k has access to a great, low cost index fund representing the US Stock market. But all your other 401k choices are overpriced, actively traded nonsense. In this case, there’s no shame in holding your US Stock fund entirely in your 401k, and then spreading out your International and Bond exposure across your IRA and after tax options.

On the other hand, if you’re one of the lucky few granted access to awesome index funds everywhere you look, then I suggesting shooting for tax efficient fund placement .

Final Thoughts on the 3 Fund Portfolio

If I were starting over from scratch today, there’s something about the beauty, simplicity, and performance of the Three Fund Portfolio that’s hard to resist. It’s approachable, understandable, and overall, really freakin’ effective.

With just three funds, you gain broad diversification, cut down on fees, and most likely, continue outperforming even the most professional money managers. All with a strategy that takes no more than 10 minutes to set up, and roughly the same amount of time to review once-a-year-or-so.

Speaking of which, Personal Capital’s free portfolio tracker is still the coolest tool I’ve ever found to track your allocation and make sure your portfolio stays on track. That way, you’ll keep rocking the 3 Fund Portfolio, and all its simplistic benefits, for decades to come.

My Money Wizard is an opinion based website. I am not a financial advisor, and the opinions in this article should not be considered financial advice.

Reader Interactions

what is the bogle 3 fund portfolio

September 17, 2018 at 8:29 am

This is how I got started investing. It’s great! I’ve actually supplied even further, to 100% equities, 100% total US stock market fund. I’ll add bonds when I get closer to FI, but I’m very comfortable with my 1 Fund Portfolio right now!

what is the bogle 3 fund portfolio

September 20, 2018 at 11:25 am

haha, can’t beat the simplicity of a 1 fund portfolio! It’s slightly riskier, but I did do something similar for a while.

what is the bogle 3 fund portfolio

December 25, 2019 at 1:57 am

Where do I go to purchase index funds? Hope to hear from u soon.

what is the bogle 3 fund portfolio

December 30, 2019 at 8:07 pm

Cory, You need an account with a broker. Vanguard, Fidelity, and Schwab are the most popular for the index fund investors. If you go with one of these, then you can follow the advice in the article.

what is the bogle 3 fund portfolio

September 17, 2018 at 9:51 am

What would be equivalents if using ETFs?

what is the bogle 3 fund portfolio

September 18, 2018 at 3:42 pm

VTI: US stocks VXUS: International stocks including emerging markets BND: Bonds or BSV: Short term bonds

September 20, 2018 at 11:21 am

Thanks Simon.

what is the bogle 3 fund portfolio

September 17, 2018 at 2:14 pm

Good stuff Money Wizard. I’m glad you mentioned that an international allocation may not be necessary. I’ve done some research for my blog, and the vast majority of companies you find in U.S. stock index funds have a huge percentage of their sales overseas. Usually in the 30-50% range, and some even higher than that.

For me, that’s plenty of international allocation. The world is very much and interconnected place now!

September 20, 2018 at 11:24 am

Great point!

what is the bogle 3 fund portfolio

September 17, 2018 at 10:11 pm

Super thorough! I’ve set up a similar portfolio, but slightly altered including two additional funds. I guess we could always argue about slight variations.

P.S. I’m surprised Warren didn’t just tell his wife to put it 100% in stocks!

September 20, 2018 at 11:29 am

Thanks Steve!

what is the bogle 3 fund portfolio

September 18, 2018 at 10:44 am

Money Wizard if you hypothetically had all your assets in cash right now and we’re going to put everything into those three funds what % would you break them down into at your current age? I personally at age 31 like the 75% US stocks, 20% International, and 5% Bonds.

September 20, 2018 at 11:23 am

I’d probably do something similar as my current account balance, which looks similar to the 25 year old patriot example. I’m comfortable with that because I’ve already proven to myself that I can sit through an economic downturn without panicking.

what is the bogle 3 fund portfolio

July 14, 2019 at 5:46 pm

Money Wizard

I am almost 61 probably working to almost 67. I just sold a rental property so besides my 80 0,000 my wife and I have in various funds 401 K’s, Roths and IRA i now have 275,000 in non qualified sitting in a savings account. I am thinking of the 2 or 3 fund approch with 2 Vanguard Funds probably 65 / 35 stks to bonds Your thoughts?

what is the bogle 3 fund portfolio

September 19, 2018 at 8:25 pm

Just curious. What are your thoughts are REITs and in fitment (if any) to retirement portfolio?

I’m personally very risk averse at 28 so my portfolio asset allocation is as follows: 40% Mid Cap Index 35% Small Cap Index 15% S&P 500 Index 5% International Index 2.5% Aggregate Bond Index 2.5 REITs Index

September 20, 2018 at 11:01 am

I like REITs and own some myself. A lot of people add a little bit of REITs to make a 4 fund portfolio.

Are you sure you meant risk averse (aka risk avoiding)? At 80% mid-cap, small-cap, and international your portfolio is much more risky than a typical breakdown. Risk neutral/risk taking/risk tolerant would describe someone who’s happy with a riskier portfolio.

September 22, 2018 at 8:03 am

Gotcha, cool.

Yes, sorry I was saying tolerant but for some reason I typed averse.

Love your blog!

what is the bogle 3 fund portfolio

September 24, 2018 at 9:09 am

Thank you so much for this article. Quick and simple, I’m starting from scratch. I’m 40, lost everything a couple of years ago in what amounted to a divorce (though we weren’t married over the past two years I’ve had to cash out what little I had built and have shelled out over $112k). I have a pension and retirement HSA but need to start back over again in investing as I don’t want to just rely on my pension to be there…no thank you. I have an option for deferred compensation through work, but I don’t like that option and also feel I can do better with after-tax dollars.

So, with that knowledge, where would you start if you were me? Also, I may want options where I can start pulling some money out; between 2%-4% before age 59 1/2 so I want to avoid anything where I would be hit with penalties for pulling out money ahead of retirement.

what is the bogle 3 fund portfolio

September 27, 2018 at 3:43 pm

Great read Money Wizard – should be compulsory for high school and college students!

Too many people (myself included) want to trade actively and chase the rush but the figures don’t lie. Think it was Jesse Livermore who said ‘the most money I ever made was by sitting on my hands”.

Looking forward to your next post!

what is the bogle 3 fund portfolio

October 1, 2018 at 11:54 am

Great article and very informative! I still think it’s worth buying individual stocks for the common investor if you do the proper research and stay informed on the companies you’re buying. One should definitely hold a majority of their investments in index funds, but serious gains can be made from investing into actual companies.

what is the bogle 3 fund portfolio

October 5, 2018 at 7:24 pm

Great read Money Wizard!

I just got started in building my portfolio. Because I’m not a US citizen, most of the holdings will be on ETFs. And instead of funding my portfolio every month, I can only fund my portfolio every 3 to 6 months in order to reduce the total % of fees.

The 3 funds portfolio is GREAT for me because it means I can invest in one fund with a bigger amount once at a time, rather than to break my investment down into smaller pockets = higher fees!

what is the bogle 3 fund portfolio

October 25, 2018 at 6:48 am

Love this article! I just read The Bogleheads new book on this topic and I’m a huge fan. One typo… under 110 minus your age, I believe you mean stocks not bonds.

October 25, 2018 at 11:48 am

Fixed! Thanks!

what is the bogle 3 fund portfolio

November 10, 2018 at 11:39 am

Would this work in retirement as well, or go to an all value fund for a dividend play? Guess can always just sell capital – any thoughts? Know the value would be a bit less risky in a downturn, but not reflect growth in upturn.

November 10, 2018 at 1:24 pm

Yeah it would, and lots of retirees do it.

The only thing that might change is a retiree is probably more worried about keeping what they already have vs. future growth. So you’d just switch to a more conservative position, aka a higher percentage of bonds.

what is the bogle 3 fund portfolio

November 18, 2018 at 11:29 pm

I’m a grandpa to most of you guys, I’m sure, but I was able to go from a net asset value of $Broke to over a million in the past 17 years. I did it through hard work, a little luck and diligent investing in less diversified aggressive growth funds.

Now as I approach retirement, regarding the article, I’d like to suggest replacing the international fund with small cap value, but in a 5:1 ratio with Total US Stock Market (Vanguard VTI etf) and Small Cap Value (VIOV). Using PortfolioVisualizer.com you can clearly see that small cap value, even in small quantities (I prefer about 10-20% of core stock fund in SCV), does better than including an international fund with less drawdown and a smaller “worst year,” resulting in higher returns.

what is the bogle 3 fund portfolio

November 22, 2018 at 11:53 pm

This is my portfolio at vanguard. Vti 75% and viov 25%.

This is my second portfolio at M1finance. Vti 50% VIOV 20% Vxus 20% VTEB 10% Both Taxable accounts. I’m 38 years old who wants to invest for a long term. What do you think?

what is the bogle 3 fund portfolio

November 27, 2018 at 3:54 am

For a non US resident how can one invest and create a portfolio similar to this?

what is the bogle 3 fund portfolio

May 1, 2019 at 8:00 am

If you are adding funds to your investment account monthly, like for a Roth, how do you suggest repurchasing funds without making it something you have to maintain monthly and constantly rebalance? Even though that seems low maintenance I’m sure I will break the habit of repurchasing monthly…

May 1, 2019 at 8:57 am

Vanguard lets you automatically contribute a predefined amount on a preset schedule, so you’ll never miss a month if that’s what you’re concerned amount. Outside of that just set a reminder in your phone to check the allocation every quarter, half-year, or year to re-balance if you’d like.

what is the bogle 3 fund portfolio

June 9, 2019 at 3:04 pm

just saw this article. Thanks for the info.

What would be the equivalent for Fidelity ETF’s for the 3 fund strategy?

what is the bogle 3 fund portfolio

July 8, 2019 at 9:08 pm

Do you recommend using all of your cash in your Roth IRA for investing (using this strategy) or do you keep some cash in it?

what is the bogle 3 fund portfolio

July 25, 2019 at 2:23 pm

best 3 fund portfolio using Ishares for investors in their early 70’s??? thanks

what is the bogle 3 fund portfolio

August 16, 2019 at 8:51 pm

Great writing. And dead on accurate. The only thing you missed was account placement and tax loss harvesting.

what is the bogle 3 fund portfolio

October 24, 2019 at 9:40 am

I’m a brand new investor, age 39 with an old 401k (Target Date 2050 Fund), a new Roth IRA (85% FXAIX/15% FXNAX), and contributing toward a pension (can collect at age 53). I’d like to maximize my growth, but I’m only comfortable managing Index Funds right now. Is my approach any good, or do I need to consolidate my accounts & rethink my strategy? Thanks!

what is the bogle 3 fund portfolio

November 12, 2019 at 12:15 pm

Really appreciate the article above. I bought the Fidelity US Stocks and International Index Fund as suggested, but the Fidelity FSITX, Bond Index, said no longer open to new investments. Can you recommend another Fidelity Bond Index? Thank you

what is the bogle 3 fund portfolio

December 1, 2019 at 12:47 pm

I agree that diversification is key. Also, most people are not good stock pickers so the mutual fund approach makes most sense. With the US stock market doing so great this year, taking a foreign approach to stock and bond mutual funds is always a great idea. The key is to have a plan and stick with it.

what is the bogle 3 fund portfolio

January 6, 2020 at 3:22 pm

Great articles, and timely- I want to simplify my investments! A financial advisor has me in 12 mutual funds.. liking the 3 Fund Portfolio idea- Closing in on 60 yrs old, its’ 2020 now— Would your advise change now with the new year and events? Thanks

what is the bogle 3 fund portfolio

January 16, 2020 at 6:24 pm

Two main problems with the Bogleheads 3 fund portfolio concept:

First, the two stock funds (VTSMX and VGTSX) are extremely top heavy due to cap weighting. They have only about ~5% in small cap companies, but small cap tends to outperform large cap over time. Even among low-cost index funds it’s not hard to find small cap examples that have outperformed the total market indexes over time. In the US look at FSSNX, VIEIX, VSMAX and for international look at NAESX.

Second, bond yields are so low that they barely keep up with inflation. Recent research shows that 100% stocks is safer than 50/50 bonds/stocks. See “Why Stocks, Not Bonds, Assure Less Risk in Retirement” by Dave S. Gilreath, ABC News dot com, May 20, 2014,

what is the bogle 3 fund portfolio

January 24, 2020 at 2:15 pm

May of 2014 is not recent research. Do you have a more recent article or info you could share?

what is the bogle 3 fund portfolio

October 27, 2020 at 4:51 am

Good article, any comparison’s for your European cousins?

what is the bogle 3 fund portfolio

May 5, 2021 at 2:30 pm

3 years late here haha but would you still stand by this article? Any other advice? I have 5k in my IRA that I’m about to invest. I came to this article from Stephan Graham’s video.

what is the bogle 3 fund portfolio

August 18, 2021 at 6:40 pm

I have the 3 fund portfolio. in my M1 finance account. Its done quite well. Quick and easy set up. I think its a genius idea of investing.

August 18, 2021 at 11:06 pm

It concerns me that the Bogleheads, or anyone experienced at successful investing would consider an average return of 6% good or acceptable. Assuming one lives off of 4% of their portfolio, you are annually LOSING money (the real value of your portfolio) considering the average rate of inflation is between 2.5-3%! Lately it is between 6-7%! One must achieve at least 7% average yearly returns to barely break even!

There are far better ways to safely achieve a higher rate of return, but many people are just not interested or too lazy to self-educate on investing.

August 19, 2021 at 1:57 pm

https://mymoneywizard.com/average-stock-market-return/

what is the bogle 3 fund portfolio

November 6, 2022 at 12:33 am

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Build Bogleheads Three Fund Portfolio With ETFs

What is the three fund portfolio.

The three-fund portfolio is a lazy portfolio that consists of three ETFs.

Article contents

How do you build the three fund portfolio.

Here’s how you build the Three Fund Portfolio with ETFs.

42.00% Total US Market (VTI)

18.00% International Developed (VEU)

40.00% U.S. Total Bond Market (BND)

The 60/40 version of the three-fund portfolio consists of 60% equities and 40% bonds.

What is the historical return of the three-fund portfolio?

Below you see how the three-fund portfolio has performed in the past.

Portfolio data was last updated on 11th of August 2023, 08:35 ET

Here is what the table is showing you

Year to date : This shows what the portfolio has returned this year starting from the first trading day of the year.

10 Year return: This shows the compounded annualized growth rate over a ten-year period. The current year is excluded from calculations.

CAGR since 1989: This shows the compounded annualized growth rate since 1989. The current year is excluded from calculations.

Expense ratio: This shows the cost of holding the portfolio if you were to construct the portfolio using the proposed ETFs.

Yield: This is the expected dividend yield of the portfolio.

Please note that past performance is not a guarantee of future returns.

How do the Three-Fund portfolio compare to the best portfolios?

Below you can see the returns of the best portfolios that we have benchmarked.

What is the Three Fund portfolio?

The Three Fund Portfolio is a simple and popular investment strategy that consists of just three index funds that aim to provide broad exposure to the entire stock and bond markets with low fees and minimal effort. The three funds typically include:

Total U.S. Stock Market Fund: This fund invests in the entire U.S. stock market, providing exposure to large-cap, mid-cap, and small-cap companies across all sectors of the economy.

Total International Stock Market Fund: This fund invests in the stock markets of developed countries outside the United States, providing exposure to companies in Europe, Asia, and other regions.

Total Bond Market Fund: This fund invests in a diversified mix of high-quality U.S. bonds, including government bonds, corporate bonds, and mortgage-backed securities.

By investing in these three funds, investors can gain broad exposure to the entire global stock and bond markets with a single investment in each fund. This diversification helps to reduce overall risk and can potentially provide more stable returns over the long term.

The Three Fund Portfolio is a passive investment strategy that requires minimal maintenance or intervention once it is set up. Investors can simply rebalance the portfolio periodically to maintain the target asset allocation and adjust the weighting as needed.

Overall, the Three Fund Portfolio is a simple and effective investment strategy that can provide a high level of diversification and stability for investors seeking a long-term investment approach with low fees and minimal effort.

The three-fund portfolio is a hallmark of the Bogleheads forum .

The portfolio makes room for rebalancing to work its magic while maintaining exposure to almost all of the world’s investable assets.

The portfolio varies in that the allocation to the three asset classes changes depending on your risk tolerance .

Taylor Larrimore of the Bogleheads forum is a strong advocate of the portfolio and has written a book detailing the strategy.

It’s a fantastic book with plenty of evidence to show you why you need to implement this simple strategy.

The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk

How do you build the three-fund portfolio with etfs.

Below you can see the many types of three-fund portfolios you can build. The three-fund portfolio consists of 3 ETFs. It you want more risk you can divide more to the stock part of the portfolio.

If you want more safety, then you should increase your allocation to bonds.

Portfolio allocation for the Three Fund portfolio

Here’s the asset allocation for the Three-Fund Portfolio.

What are the advantages and disadvantages of the Three-fund portfolio?

Here are the advantages the three-fund portfolio.

The portfolios are simple to understand.

The Three-fund portfolio is flexible. You can change the allocation as your goals change.

Rebalancing the three-fund portfolio is very easy.

The three-fund portfolios have excellent returns.

The portfolio is very cheap to maintain because it uses cheap ETFs.

The investment portfolios have good diversification. You own a slice of all the world’s assets.

It is John Bogle approved!

John C. Bogle - Founder of Vanguard and supreme commander of index investing

Here are the disadvantages the three-fund portfolio.

The three-fund is not sexy , and you won’t be bragging about it at parties. (You do own Tesla though - just not directly!)

The investment portfolio has not beaten the S&P 500 in the past.

The three-fund portfolio may be too simple for some people.

The portfolio may not have enough asset classes to make use of the power of rebalancing.

Where can I learn more about the Three-Fund portfolio?

First of all, you need to get the book written by Tailor Larrimore.

Also, make sure you read the Bogleheads (Taylor Larimore) analysis of the portfolio!

Suggestions for your next steps

If you have already committed to a portfolio then maybe you need help maintaining the portfolio. In this case you will find our rebalance worksheet useful .

Rebalancing your portfolio lowers your risk and may provide higher returns in the long run. It is completely FREE.

You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool .

What is the 3 Fund Portfolio for Europeans?

Here is how you build the 3 Fund Portfolio with ETF suitable for Europeans:

Total US Market (VNRT) OR iShares (CSUS)

International Developed (SWDA, includes US)

Total US Bond Market: SUAG (iShares US Aggregate Bond UCITS ETF)

You could use 2 ETFs. The 2 ETFs are SWDA and SUAG as SWDA consists of all developed countries including the US.

How do I build the 3-fund portfolio with Fidelity ETFs?

Fidelity does not have a total stock market ETF. They have a fund. It is called Fidelity Total Market Index Fund (FSKAX).

Fidelity Total Market Index Fund (FSKAX).

Total International Ex-US (FDEV)

Total US Bond Market (FBND)

Do you want to read more like this?

Here are the 20 best income portfolios built with etfs for 2023.

If you're looking for income then you should look at this list of the 20 best income portfolios.

Build Research Affiliates Portfolios With ETFs

Learn to build Research Affiliates model portfolios. How do they compare to the very best portfolios?

All Weather Portfolio vs. The Permanent Portfolio - Which Is Best?

Which portfolio is best - Ray Dalio's All-Weather portfolio or the Permanent portfolio?

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One place you won't find a bitcoin ETF: Jack Bogle's Vanguard

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A Vanguard spokeswoman told CNBC that the asset management giant has no plans to create a bitcoin ETF of its own, or to even offer funds from other issuers on its trading platform.

  • Vanguard is one of two dominant players in the U.S. ETF market.
  • Its chief rival BlackRock has entered the bitcoin space, with the iShares Bitcoin Trust (IBIT) launching Thursday.

In this article

More than a dozen financial firms are involved in new bitcoin exchange-traded funds that began trading Thursday , but one of the biggest fund issuers and money managers in the world still won't touch cryptocurrency.

"While we continuously evaluate our brokerage offer and evaluate new product entries to the market, spot Bitcoin ETFs will not be available for purchase on the Vanguard platform. We also have no plans to offer Vanguard Bitcoin ETFs or other crypto-related products," the statement said.

"Our perspective is that these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio," the statement continued.

Vanguard is one of two dominant players in the U.S. ETF market. Its chief rival BlackRock has entered the bitcoin space, with the iShares Bitcoin Trust (IBIT) launching Thursday.

Vanguard, headquartered just outside Philadelphia, has earned a reputation for being a low cost, and more conservative investment manager. Under its founder, Jack Bogle, Vanguard helped to drive down costs for investors starting in the 1970s by introducing passive stock index funds that tracked broader markets and, on average, outperformed highly paid active managers. It also constantly lowered its fees.

Bogle died in 2019 and Vanguard now oversees more than $8 trillion in assets but still operates using many of its founder's more cautious beliefs. Don't miss these stories from CNBC PRO:

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  • Goldman sees a 50% gain ahead for this Chinese electric vehicle stock, initiates with buy rating
  • 'Twice as cheap': These stocks' discount to the S&P 500 is double its average, Ritholtz's Brown says

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Introducing the Fidelity ® Wise Origin ® Bitcoin Fund (FBTC)

Get easier exposure to the price of bitcoin—without buying bitcoin directly—in brokerage, trust, and tax-advantaged accounts.

This product is for investors with a high risk tolerance. It invests in a single asset, bitcoin, which is highly volatile and can become illiquid at any time. View prospectus

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what is the bogle 3 fund portfolio

When Fidelity innovation meets crypto

For over 80 years, Fidelity innovations have helped customers meet their continued need for growth amid shifting market conditions. Our current focus on digital assets—and the creation of a blockchain ecosystem—continues our proud legacy of providing for your total investing needs.

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what is the bogle 3 fund portfolio

What is a spot bitcoin ETP?

Learn about the potential pros and cons of this unique new investing opportunity.

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The Fidelity ® Wise Origin ® Bitcoin Fund (FBTC) is an exchange-traded product that seeks to track the performance of bitcoin. FBTC provides investors with the opportunity to gain exposure to the price of bitcoin in a familiar investment structure that passively invests in bitcoin. As an exchange-traded product, investors can purchase the fund through multiple account types, including brokerage, trust, and tax-advantaged accounts.

Fidelity is not recommending or endorsing this fund or any allocation to this fund. Before investing in FBTC, investors should consider their time horizon, tolerance for risk, and personal financial situation. Learn more in our article that discusses 3 keys to choosing investments .

Bitcoin, and products that track its performance, historically experienced heightened volatility compared to traditional equities. You can learn more about the cryptocurrency through insights from Fidelity .

FBTC provides indirect exposure to the price of bitcoin through an investment product available on a traditional stock market exchange. FBTC can be held in tax-advantaged accounts, and capital gains will be recorded alongside traditional brokerage tax reporting. FBTC will operate like other exchange-traded products, trading during stock market hours with fees charged as part of the fund's expense ratio.

Direct ownership of bitcoin (“spot bitcoin”) means that the investor owns the actual assets and is individually responsible for the secure custody of their bitcoin via a wallet or third-party custodian. In doing so, the investor may have access to 24/7 trading and can move assets via the bitcoin blockchain. The fees paid on transactions are defined by the individual exchanges, typically based on the size of the transaction, demand for block space, and the exchange's fee model.

For more information, view our article about gaining exposure to bitcoin through a spot crypto exchange-traded product.

All ETFs are part of a broader category called exchange-traded products (ETPs), which are listed on an exchange and can be bought and sold during market hours like a stock. ETFs, the most common type of ETP, are governed by the Investment Company Act of 1940 and are pooled investment opportunities that typically include baskets of stocks, bonds, and other asset groups based on fund objectives. FBTC is similar to an ETF since FBTC trades on an exchange, however, FBTC is an ETP that holds 100% bitcoin and does not invest in securities; therefore, it is not subject to the Investment Company Act of 1940.

Fidelity Investments is waiving the fee to invest in FBTC. Starting August 1, 2024, Fidelity will begin charging an expense ratio of 25 basis points.

No. The fund seeks to track the performance of bitcoin passively, as measured by the performance of the Fidelity Bitcoin Reference Rate. FBTC holds 100% bitcoin.

The bitcoin in the Fidelity ® Wise Origin ® Bitcoin Fund are custodied by Fidelity Digital Asset Services, LLC. Fidelity Digital Assets℠ provides an enterprise-grade custody solution for securing digital assets, featuring extensive operational, cyber, and physical controls.

Investors will not be issued dividends.

Volatility. Gaining exposure to the performance of bitcoin does not shield investors from bitcoin's volatility, which has been substantial at times throughout its history. Unlike many other ETFs and ETPs, which diversify their risk across several stocks or commodities within a specific sector, spot bitcoin ETP holdings are concentrated only in bitcoin.

Trading hours. Spot bitcoin ETPs can only be bought or sold during traditional market hours. Bitcoin trades 24/7 and has made significant double-digit moves on weekends. An ETP investor will have to wait until the market opens to enter or exit positions.

Tracking errors. Like other ETPs, spot bitcoin ETPs may not always exactly reflect the price of bitcoin as a result of management fees and rebalancing costs and delays.

As with any investment, investors should consider their investment objectives, time horizon, tolerance for risk, and personal financial situation. Learn more about the pros and cons of spot bitcoin ETPs .

Yes. With Fidelity Crypto ® , you can trade and secure bitcoin and ethereum directly with as little as $1. By owning bitcoin or ethereum directly, you can trade your crypto with Fidelity 7 days a week, 23 hours a day. You'll get institution-level security and services that Fidelity Digital Assets℠ has offered since 2018. You can also grow your crypto knowledge with news, articles, podcasts, and webinars, and dive deeper with on-demand education. Fidelity Crypto® is offered by Fidelity Digital Assets℠. Direct trading of crypto must take place in a Fidelity Crypto account and is not available in brokerage accounts. Fidelity Crypto ® is not available in every state .

FBTC provides investors with the opportunity to gain indirect exposure to the performance of bitcoin in their brokerage accounts. FBTC is an exchange-traded product and can be bought through brokerage, trust, and tax-advantaged accounts. Custody of the bitcoin held by the fund is provided by Fidelity Digital Asset Services, LLC. FBTC cannot be purchased through a Fidelity Crypto® account.

Learn more about spot bitcoin ETPs .

Placing an order for the Fidelity ® Wise Origin ® Bitcoin Fund and similar products requires investors to execute Fidelity's Designated Investments Agreement (DIA). Additionally, the account's investment objective must be set to Most Aggressive.

Investors who have not previously agreed to the DIA will be prompted to review the agreement at the point of purchase. Investors must go to Fidelity.com on their computer or mobile device browser. The DIA cannot be executed in the Fidelity mobile app.

If needed, investors may review and make changes to their accounts' investment objectives by selecting Accounts & Trade, then Account Features, then selecting Financial Profile under the Brokerage and Trading section.

Fidelity requires the DIA on certain products that may experience heightened volatility. Investors should only invest in investment products that align with their investment objectives, time horizon, and tolerance for risk.

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ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses.

Digital assets are highly volatile, and their market movements are very difficult to predict. Various market forces may impact their value including, but not limited to, supply and demand, investors’ faith and their willingness to purchase it using traditional currencies, investors’ expectations with respect to the rate of inflation, interest rates, currency exchange rates, an evolving legislative and regulatory environment in the U.S. and abroad, and other economic trends. Investors also face other risks, including significant and negative price swings, flash crashes, and fraud and cybersecurity risks. Digital assets may also be more susceptible to market manipulation than securities.

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Heartland Value Plus Fund Q4 2023 Portfolio Manager Commentary

Heartland Advisors profile picture

  • Heartland Advisors is a boutique, independent investment firm in Milwaukee, WI. Our value-focused, actively managed product suite includes distinct U.S. and international investing strategies, which are offered through five mutual funds and four separately managed accounts.
  • Investors seemed to buy into the narrative that says the Federal Reserve will slash interest rates aggressively in 2024, fueling a new round of risk-taking in the fourth quarter that benefited speculative, high-beta and highly leveraged stocks.
  • As demoralizing as this environment is for fundamentally driven, defensive-minded investors like us, we commit to staying true to ourselves and our long-term process.
  • We can’t completely ignore this new environment, but higher-octane stocks are only attractive to us if they overlap with Heartland’s 10 Principles of Value Investing™.

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Lemon_tm/iStock via Getty Images

Fourth Quarter Market Discussion

For value investors, there comes a point in every cycle when it becomes exceedingly difficult to be a contrarian, requiring every ounce of discipline to stay true to one’s principles. That’s where we found ourselves in the fourth quarter.

As other investors seemed to buy into the notion that they could have their cake (moderating inflation) and eat it too (ongoing growth), the wall of worry that every market must climb seemed to evaporate overnight. After falling in the first four weeks of the quarter, small-, mid-, and large-cap stocks surged starting in late October, led by speculative, highly leveraged companies that stand to benefit in the early stages of a new cycle.

Since the end of October, the broad market delivered more than a year’s worth of gains in just nine weeks, with the all-cap Russell 3000® Index up 15.1% and the Russell 2000® Index of small stocks surging 22.4%.

Never mind that Federal Reserve policy generally acts with a lag, which means bad news may yet emerge in the coming months. Forget, for the moment, that there are two major ground wars being fought with the potential to impact oil prices. And let’s also ignore the collapse of the personal savings rate and record credit card debt, which hints at further challenges for the consumer economy.

All of these concerns notwithstanding, the consensus view seems to be that the Federal Reserve will be able to stick a “soft landing” and slash interest rates aggressively this year. With the futures market pricing in six potential rate cuts in 2024, even the fixed income market is embracing this narrative, with yields on 10-Year Treasuries down from close to 5% in late October to approximately 3.9% at the end of the quarter, further emboldening risk-taking.

As demoralizing as this environment is for fundamentally driven, defensive-minded investors like us, it is risky—and late in the game—to jump on the bandwagon. Instead, we believe this is the time to look for opportunities that fit our process while sticking to our guns and making good decisions based on Heartland’s time-tested principles.

Attribution Analysis

In the fourth quarter, the Value Plus Strategy returned approximately 7%, trailing the Russell 2000® Index, which returned 15.3%. The underperformance was attributable to our defensive positioning, stock selection (particularly in Energy), and underweight exposure to early cycle parts of the market such as Financials, which were the benchmark’s best-performing sector.

The Value Plus portfolio is constructed with low-volatility, low-debt stocks that can thrive in good times and bad. Starting in late October, though, high-beta, highly leveraged, early-cycle companies came into favor, especially as investors grew convinced that a soft landing was at hand. Historically, in periods when the portfolio has been underweight to certain sectors that detracted from performance, certain overweights have compensated. In the fourth quarter, however, our allocation decisions weren’t of much assistance.

The fact is that the portfolio has been too defensively positioned given the current euphoria in the markets. But we also believe that this is a phase in the cycle where the market is pleading with contrarians to capitulate to current perspectives.

We have made some modest pivots, including aligning sector allocations more closely to benchmark weightings where possible. In a market rewarding high-beta stocks, where the portfolio has little exposure, we are also looking for beta—but only when it overlaps with our 10 Principles of Value Investing™, which require us to look for well-managed, financially strong businesses with sound balance sheets trading at attractive prices to help create a margin of safety. Our process can coincide with some higher-octane names, but we remain extremely disciplined when it comes to key considerations such as leverage, financial soundness, and valuations.

In addition to these steps, during the quarter we trimmed some positions for tax purposes, which were beaten down when self-help strategies didn’t progress as hoped—and where we now have less conviction. As we have been patiently looking for ways to deploy the proceeds of those sales, the temporary increase in cash was also a drag on performance in the fourth quarter.

Without question, this has been a challenging environment for the Value Plus Strategy. While we can’t completely ignore the current environment—even if we disagree with some core economic assumptions—we must stay true to ourselves and our process. That’s why we believe in Heartland’s 10 Principles of Value Investing™, which are non-negotiable elements that we look for in any investment under consideration. As famed fund manager Seth Klarman has pointed out, the essential characteristics of value investing are “patience, discipline, and risk-aversion.” We believe turning our backs on those values in the short term is a sure-fire recipe for underperforming in the long run.

Bradford A. Evans, Senior Vice President and Portfolio Manager

Andrew J. Fleming, Director of Research, Vice President, and Portfolio Manager

Fund Returns

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

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Financial Page

A Bogleheads® blog

Three fund portfolio 2020 update

what is the bogle 3 fund portfolio

The Taylor Larimore three-fund portfolio , is a portfolio design consisting of three “total” market index funds, covering the US stock market, the international stock market, and the US taxable investment grade bond market. Investors were able to implement this portfolio beginning in 1997, when Vanguard introduced a total international index fund. The firm had introduced a total US stock market index in 1992, and a total US bond market index in 1987.

The 2020 returns for the portfolios constituent funds (admiral class):

  • Vanguard Total Stock Market Index Fund: 20.99%
  • Vanguard Total International Stock Index Fund: 11.28%
  • Vanguard Total Bond Market Index Fund: 7.72%

Below are four portfolios with allocations modeled upon Vanguard Lifestrategy funds (click images to enlarge). The portfolios allocate 30% of the stock allocation to international stocks.

The portfolios range from an aggressive portfolio holding 80% stocks to a conservative portfolio consisting of 20% stocks.

what is the bogle 3 fund portfolio

The table below provides 2020 returns for these portfolios. Note that a different weighting of international stocks would result in differing returns.

Historical returns

The following tables give return data for three-fund portfolios assuming investment in Vanguard index funds. Keep in mind that past returns are no guarantee of future returns , but the history reveals how each portfolio allocation has performed over both the 2000 – 2002 and 2008 bear markets and ensuing recoveries.

Now that Vanguard has eliminated investor shares for a large number of index funds, the returns data from 2018 forward reflects returns for admiral shares. Note that returns data before 2018 reflect investor share performance and that investors using lower cost admiral share portfolios prior to 2018 can add approximately +0.10% annual compound return for each allocation.

Three-fund portfolio returns

Compound returns

The tables below give 3-year, 5-year, 10-year, 15-year, and 20-year compound returns and volatility statistics for each three-fund portfolio allocation.

80/20 allocation

60/40 allocation

40/60 allocation

20/80 allocation

Sharpe ratio

Three fund portfolios: Sharpe ratios

Calculated returns data uses this three-fund portfolio g oogle drive spreadsheet. The spreadsheet contains returns data for an assortment of international stock allocations. Note that over time Taylor Larimore has opted for 20% of equity in international stock in his recommended three-fund portfolio. The 2020 returns for this allocation can be found in the spreadsheet.

IMAGES

  1. 3 Fund Portfolio: How to Use This Crazy Simple Strategy to Crush the Pros

    what is the bogle 3 fund portfolio

  2. Bogleheads 3 Fund Portfolio: A Comprehensive Guide (2022 review

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  3. The Bogleheads' Guide to the Three-Fund Portfolio

    what is the bogle 3 fund portfolio

  4. What Is The Three Fund Portfolio & How Does It Work?

    what is the bogle 3 fund portfolio

  5. Bogleheads 3 Fund Portfolio Review & Vanguard ETFs To Use

    what is the bogle 3 fund portfolio

  6. 3 Fund Portfolio: How to Use This Crazy Simple Strategy to Crush the Pros

    what is the bogle 3 fund portfolio

VIDEO

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  5. 3 Fund Investing for Beginners: Your Key to Financial Independence- Personal Finance AI

  6. 3NtY Selections

COMMENTS

  1. Three-fund portfolio

    A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund.

  2. Bogleheads 3 Fund Portfolio Review and Vanguard ETFs (2024)

    What Is the Bogleheads 3 Fund Portfolio? The Bogleheads 3 Fund Portfolio is arguably the most popular lazy portfolio, which just means a portfolio that you don't need to constantly monitor or change. "Bogleheads" are followers of the advice and path of the famous Jack Bogle, founder of Vanguard and considered the father of index investing.

  3. The Bogleheads' Guide to the Three-Fund Portfolio

    This all-indexed portfolio contains over 15,000 worldwide securities, in just three easily-managed funds, that has outperformed the vast majority of both professional and amateur investors.

  4. What Is the Bogleheads' 3-Fund Portfolio?

    This type of investment portfolio was popularized by the Bogleheads, a group of superfans for Jack Bogle, the founder of the Vanguard Group and creator of the index mutual fund. Its thesis...

  5. The 3-Fund Portfolio

    The three-fund portfolio, to be sure, is simple to implement. ... Jack Bogle, famously, is 89 years old and going strong. (He currently is working on his 12th book.) Mr. Larimore is five years ...

  6. Three-Fund Portfolio Update

    Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk."

  7. Bogleheads 3 and 4 Fund Portfolio: Backtest and Performance Analysis

    Boglehead 3 Fund Portfolio is a simple, low-cost investment strategy that consists of three index funds: a U.S. Total Stock Market Index Fund, an International Stock Market Index Fund, and a U.S. Total Bond Market Index Fund. Boglehead 4 Fund Portfolio adds Total International Bond Market Index Fund to the mix.

  8. Your Guide to the Bogleheads 3 Fund Portfolio

    The Bogleheads 3 Fund Portfolio is designed to adhere to all of the above principles. It is a simple portfolio that comprises three broad asset classes: a U.S. total market index fund, an international total market index fund and a U.S. bond total market index fund. This portfolio operates on the idea that diversification within your portfolio ...

  9. Three fund portfolio 2021 update

    The Taylor Larimore three-fund portfolio, is a portfolio design consisting of three "total" market index funds, covering the US stock market, the international stock market, and the US taxable investment grade bond market. Investors were able to implement this portfolio beginning in 1997, when Vanguard introduced a total international index fund.

  10. Bogleheads Three-fund Portfolio

    The three-fund portfolio is a portfolio popularized by Jack Bogle fans (boggleheads). It uses only three fundamental asset classes: a U.S total stock market fund, a total international stock market fund, and a total bond market fund. The portfolio could be replicated using three low-cost ETFs.

  11. The Bogleheads' Guide to the Three-Fund Portfolio Book Review

    Bogleheads have, for years, criticized Jack's statement that international stocks aren't necessary that he made in Bogle on Mutual Funds in 1994. In the foreword, Jack says this: ... The 3 fund portfolio is for those who don't need to ultra tune their portfolio. Very few people do because it doesn't always translate to more returns.

  12. How to Build the Boglehead 3-Fund Portfolio

    The Boglehead 3-fund portfolio consists of a: US stock market index fund international stock market index fund, and bond market index fund The specific funds you choose will depend on the broker or investment platform you're using (e.g., Vanguard, Fidelity, etc.), but there are many options available that will fit the bill.

  13. 3 Fund Portfolio: A simple way to start investing

    A three fund portfolio is a way to simplify investing for good returns, often associated with Vanguard's founder, John Bogle and lazy portfolios. It is a simple strategy for lazy ETF investors, all you need to do is to pick three types of ETFs that give you exposure to: Total Stock Market Index Fund Total International Stock Index Fund

  14. Bogleheads 3 Fund Portfolio: It's Simple and Effective

    The Bogleheads 3 Fund Portfolio is a strategy that uses three low-cost index funds to emphasize simplicity and tax efficiency. It also reduces the risk of style drift, tracking error, overlap, asset bloat, and other problems. The Boglehead 3 Fund Portfolio also reduces the risk of fund manager changes.

  15. The 3 Fund Portfolio: Simple Investing That Works

    The three fund portfolio strategy is an investing strategy where you create a portfolio that only contains 3 assets. These assets are usually low-cost index funds or ETFs (Learn more about the differences between index funds and ETFs ). More specifically, these funds can be broken down into the following asset classes:

  16. The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple

    Amazon.com: The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk: 9781119487333: Larimore, Taylor, Bogle, John C.: Books Books › Business & Money › Investing Enjoy fast, free delivery, exclusive deals, and award-winning movies & TV shows with Prime

  17. Bogleheads Three Funds Portfolio: ETF allocation and returns

    The Bogleheads Three Funds Portfolio is a Very High Risk portfolio and can be implemented with 3 ETFs. It's exposed for 80% on the Stock Market. In the last 30 Years, the Bogleheads Three Funds Portfolio obtained a 7.78% compound annual return, with a 12.41% standard deviation. Table of contents Asset Allocation and ETFs

  18. Build john bogle's portfolio with e t fs

    Portfolio Einstein 25 Mar 2022 What is John Bogle's portfolio? The John Bogle portfolio can be built with just 2 ETFs. It is composed of a 60% Total Stock Market ETF and a 40% Total Bond Market ETF. Article contents What is John Bogle's portfolio? How do you build John Bogle's portfolio with ETFs?

  19. 3 Fund Portfolio: How to Use This Crazy Simple Strategy to Crush the Pros

    A three fund portfolio is an investment portfolio which… consists of just three funds. *GASP* More specifically, those three funds invest in the following asset classes. US Stocks US Bonds International Stocks That's it. How does the 3 Fund Portfolio work? Well, a three fund portfolio doesn't use any old fund.

  20. Build Bogleheads Three Fund Portfolio With ETFs

    Here is how you build the 3 Fund Portfolio with ETF suitable for Europeans: Total US Market (VNRT) OR iShares (CSUS) International Developed (SWDA, includes US) Total US Bond Market: SUAG (iShares US Aggregate Bond UCITS ETF) You could use 2 ETFs. The 2 ETFs are SWDA and SUAG as SWDA consists of all developed countries including the US.

  21. Here's Why Investors Love the 3-Fund Portfolio

    This option prioritizes growth and is good for investors with high risk tolerance. An equally weighted three-fund portfolio with 33% to 34% in each asset. This option is balanced, with moderate ...

  22. 3 Fund Portfolio: How To Save For Retirement With Just Three

    A three-fund portfolio is a simple—yet smart—way to create a diversified retirement savings plan by focusing on stocks (one U.S. fund and one international) and bonds (one U.S. fund). Why...

  23. One place you won't find a bitcoin ETF: Jack Bogle's Vanguard

    It also constantly lowered its fees. Bogle died in 2019 and Vanguard now oversees more than $8 trillion in assets, but still operates using many of its founder's more cautious beliefs. Vanguard ...

  24. FBTC

    Bitcoin Fund (FBTC) Get easier exposure to the price of bitcoin—without buying bitcoin directly—in brokerage, trust, and tax-advantaged accounts. Get started. This product is for investors with a high risk tolerance. It invests in a single asset, bitcoin, which is highly volatile and can become illiquid at any time. View prospectus.

  25. Heartland Value Fund Q4 2023 Portfolio Manager Commentary

    For Q4 2023, the Heartland Value Fund returned 11.7%, trailing the 15.3% gains for the Russell 2000® Value Index. Click here to read the full fund letter.

  26. Heartland Value Plus Fund Q4 2023 Portfolio Manager Commentary

    The inception date for the Value Plus Fund is 10/26/1993 for the investor class and 5/1/2008 for the institutional class. In the prospectus dated 5/1/2023, the Gross Fund Operating Expenses for ...

  27. Tencent Added Back by $3 Billion Top Asia Fund Despite China's Gaming

    A fund that outperformed most of its peers has added Tencent Holdings Ltd. back to its portfolio recently, betting on the gaming company's attractive valuation despite further industry curbs by ...

  28. Three fund portfolio 2020 update

    The Taylor Larimore three-fund portfolio, is a portfolio design consisting of three "total" market index funds, covering the US stock market, the international stock market, and the US taxable investment grade bond market. Investors were able to implement this portfolio beginning in 1997, when Vanguard introduced a total international index fund.