Three Fund Portfolio: Did Awesomeness Find Trinity?

3-fund-portfolios

The three-fund portfolio consists of three 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.

For the past 10 years, the three-fund portfolio has returned 8.34% with a standard deviation of 10.62%. Last year it returned 20.39%. The dividend yield is 2.12. The 30-year return is 8.15%.

What is the return of the three-fund portfolio?

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

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
3 Fund Portfolio 80/2035.6724.299.78%8.6130.04%
3 Fund Portfolio 60/4035.9920.398.34%8.1520.04%
3 Fund Portfolio 40/6036.3216.56.84%7.5610.04%
3 Fund Portfolio 20/8036.6412.615.29%6.8510.04%
3 Fund Portfolio Equal Weight34.1520.637.88%7.6320.04%

What is the Three Fund portfolio?

It is a hallmark of the Bogleheads forum. At its core, the strategy slices your portfolio into three parts:

  1. U.S. stocks
  2. International stocks
  3. Bonds

That’s it. Simple. Effective. Elegant.

The portfolio makes room for rebalancing to work its magic while maintaining a simple 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 and objective.

Taylor Larrimore of the Bogleheads forum is a strong advocate of the portfolio and has a book coming out: (It’s out!)

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

Building the portfolio(s)

Below you can see the asset allocations for the portfolio(s). You can also see if the portfolio(s) has a socially responsible investing (ESG) variant portfolio. You can read more about socially responsible investing (ESG) investment portfolios in this post.
To build the portfolio(s) yourself, go to our best in class ETF page to see which ETF you should choose for a particular asset class. There you can also see which socially responsible investing ESG ETFs you should select.

Portfolio allocation for the Three Fund portfolio

NameESG portfolio available?Total US MarketInternational DevelopedTotal Bond Market
3 Fund Portfolio 80/20Yes56.00%24.00%20.00%
3 Fund Portfolio 60/40Yes42.00%18.00%40.00%
3 Fund Portfolio 40/60Yes28.00%12.00%60.00%
3 Fund Portfolio 20/80Yes14.00%6.00%80.00%
3 Fund Portfolio Equal WeightYes34.00%33.00%33.00%

How we select the right ETFs

There are a lot of ETFs out there. Most of them can be discarded because:

  • They are too expensive
  • They hold too few assets and are therefore too illiquid
  • They do not meet the criteria for representing the asset class they are supposed to mirror.

We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?

If you are a European investor you need to buy European ETFs. We list 47 best ETFs in our article What Are The Best ETFs For European Investors? (Here Is 47).

As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.

You can find the socially responsible investing ESG ETFs in the same article.

Advantages and disadvantages of  the Three-fund portfolio

Advantages

  • The portfolios are simple to understand.
  • The Three-fund portfolio is flexible. You can change the allocation as your goals change.
  • Rebalancing the portfolio is very easy.
  • The three-fund investment portfolios have excellent returns.
  • The portfolio is very cheap to maintain because it uses extremely cheap ETFs.
  • The investment portfolios have good diversification. You own a slice of all the world’s assets.
  • It is John Bogle approved!  

Disadvantages

  • The three-fund is not sexy, and you won’t be bragging about it at parties.
  • 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 fully make use of the power of rebalancing.

Resources

 

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

Suggestions for your next steps

Finding the correct portfolio is hard. Maintaining your portfolio is also daunting. If you are still in doubt about which portfolio to choose, we suggest you read our article How To Invest Money: 5 Simple Steps That Work For Anyone

If you have already committed to a portfolio – good for you! If you need help maintaining the portfolio you will find our rebalance worksheet useful. Rebalancing your portfolio lowers your risk and may even provide higher returns in the long run.

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

Related questions

What is the 3 Fund Portfolio for Europeans?
You can build the 3 Fund Portfolio with the following 3 European ETFs

  • 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. They are SWDA and SUAG as SWDA consist 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)

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top