The 3 Fund Portfolio


The 3 Fund Portfolio is a simple investment portfolio that only contains 3 assets, which are typically equity (stocks) and fixed income (bonds) mutual funds. A three fund portfolio is considered a ‘lazy portfolio’ because it requires very little maintenance. This investment strategy is also simple to implement and is viewed favorably by the investment community which often recommends them as a solid introduction to long term investing.

If you’ve read our guide on asset allocation then you might recognize the phrase 3 Fund Portfolio.

This investment strategy may seem simple, but the underlying principles are solid. It helps you easily create a well-diversified portfolio with low fees (expense ratio).

Let’s jump into what the 3 Fund Portfolio actually is, how it works, and how you can make your own. But first, let’s make sure we are all on the same page.

What’s an investment portfolio anyway? Your portfolio is the collection of assets that you own. If you have all of your investments at Vanguard, then that’s where you’d go to see your portfolio. Yours might even be spread amongst a few different financial institutions.

This is pretty common if you have a 401K from work with one brokerage and your IRA with another one. In that case, you’d want to take a step back and look at your overall investments to see your entire investment portfolio.

Why Investors Love 3 Fund Portfolios

The beauty of the Three Fund Portfolio lies in its simplicity and efficiency. The typical 3 Fund Portfolio contains a U.S. ‘total market’ index fund, an international ‘total market’ index fund, and a bond ‘total market’ index fund.

Investors don’t need to necessarily use mutual funds to construct their portfolio either, as an ETF portfolio offers the same benefits. As a result, the asset classes included in these portfolios are skewed to stocks and bonds. This provides diversified exposure to the stock market. The bond fund adds additional asset diversification and lowers the expected volatility of your simple portfolio.

The weight of each asset will depend on the risk appetite of the investor.

As a refresher, equity index funds are simply investments that are comprised of many different stocks. So by buying a piece of an index, you are actually purchasing small chunks of many different companies. It takes the guesswork out of having to pick individual stocks or trying to beat the market. Even the average professional on Wall Street can’t consistently beat the market, so it’s foolish to think you’ll be able to.

Where Can I Invest?

If you are ready to start investing, but aren’t sure how to get started, the first step is to open an investment account. If you have a job with a retirement plan like a 401k or 403b, you might even already have one.

Another popular retirement account is the IRA. If you prefer, you can also open a standard investment account or taxable account. Common companies where you can open investment accounts include M1 Finance, Robinhood, Webull, and Fidelity.

Once you have the account open and funded, you can select your investments based on your risk tolerance.

Is The 3 Fund Portfolio The Simplest Way To Invest?

If you are looking for the absolute easiest way to invest, you might be interested in learning more about Facet Wealth. They are a fee-only digital financial advisory company. For a fixed monthly fee, they match you with one of their certified financial planners to handle your money for you.

If you want to manage your own investments but want to have an even simpler investment plan, you can invest everything in a single target date fund or target retirement fund. Target date funds automatically adjust their asset allocation to increase the number of bonds that they contain as you approach retirement age. This is simply to lower the risk.

The dirty little secret is that many target date funds are simply the 3 Fund Portfolio masked with a clever name. The nice thing about creating your own 3 Fund Portfolio is that you will have more control and better tax-efficiency than you’d get in a target date fund.

Target date funds also tend to have very conservative allocations, so many people will prefer to have more exposure to stocks (and less to bonds) in order to have a higher chance of generating higher returns over time. Just remember that the market is unpredictable and that historical performance is not an indicator of future performance.

Your Asset Allocation Determines How ‘Risky’ Your 3 Fund Portfolio Will be

Your split between domestic stocks, international stocks, and bonds will determine how risky your portfolio is. The more bonds you have, the less risk you’ll be taking.

We love the advice shared by John Bogle, founder of Vanguard, in his incredible book, with regards to this topic. For younger investors, he recommends investing 80% in stocks and 20% in bonds. He drops this down to 70% stocks for older investors (45yrs +). For those already retired, a split of 60% stocks to 40% bonds might make more sense.

Ultimately, these are only rough guidelines, and you will need to decide what works best for you. If you have a long investment horizon and are less risk-averse, having 95% of your investments in stocks might be right for you. It’s a personal decision that must be made with your investment goals in mind. Think about how you’d react if you were to lose 40% of your portfolio in a short period of time due to a market downturn like in 2008 / 2009. If you think you might panic and sell everything then perhaps having more bonds would help settle your mind (and stomach).

Asset Allocation Pro-Tip: If you decide to invest using only 1 target-date fund, don’t just choose a fund based on your retirement date. Look into the % of the fund allocated to bonds and decide if that’s the mix you feel comfortable with. If you have a target-retirement date of 2045, but like the allocation of the 2055 retirement-date fund better, then go with that.

They are usually pretty good at picking the right year, but it’s always best to double-check. After all, this is your future we are talking about.

Sample Three Fund Allocation

Sample 3 Fund Portfolio 1

AssetAllocation %
U.S. Stock ‘Total Market’ Index Fund60%
International Stock ‘Total Market’ Index Fund30%
Bond ‘Total Market’ Index Fund 10%

Sample 3 Fund Portfolio 2

AssetAllocation %
U.S. Stock ‘Total Market’ Index Fund45%
International Stock ‘Total Market’ Index Fund35%
Bond ‘Total Market’ Index Fund 20%

Sample 3 Fund Portfolio 3

AssetAllocation %
U.S. Stock ‘Total Market’ Index Fund50%
International Stock ‘Total Market’ Index Fund35%
Bond ‘Total Market’ Index Fund 15%

Sample 3 Fund Portfolio 4

AssetAllocation %
U.S. Stock ‘Total Market’ Index Fund55%
International Stock ‘Total Market’ Index Fund25%
Bond ‘Total Market’ Index Fund 20%

Example Index Funds For A 3 Fund Portfolio

Vanguard Index Funds

Fund Name

InvestmentsFund Ticker
Vanguard Total Stock Market Index Fund *U.S. StocksVTSAX
Vanguard Total International Stock Index Fund *International StocksVTIAX
Vanguard Total Bond Market Index Fund *U.S. BondsVBTLX

*Admiral Funds Require a $3K Minimum Investment

Fidelity Index Funds

Fund NameInvestmentsFund Ticker
Fidelity ZERO Total Market Index FundU.S. StocksFZROX
Fidelity Total Market Index FundU.S. StocksFSTMX
Fidelity ZERO International Index FundInternational StocksFZILX
Fidelity Total International Index FundInternational StocksFTIHX
Fidelity U.S. Bond Index FundU.S. BondsFXNAX
Fidelity U.S. Bond Index FundU.S. BondsFBIDX

Charles Schwab Index Funds

Fund NameInvestmentsFund Ticker
Schwab Total Stock Market Index FundU.S. StocksSWTSX
Schwab International Index FundInternational StocksSWISX
Schwab U.S. Aggregate Bond Index FundU.S. BondsSWAGX

Example ETFs In A Three Fund Portfolio

Vanguard ETFs

Fund NameInvestmentsFund Ticker
Vanguard Total Stock ETFU.S. StocksVTI
Vanguard Total International Stock ETFInternational StocksVXUS
Vanguard Total Bond Market ETFU.S. BondsBND

Blackrock iShares ETFs

Fund NameInvestmentsFund Ticker
iShares Core S&P Total Market ETFU.S. StocksITOT
iShares Core MSCI Total International Stock ETFInternational StocksIXUS
iShares Core Total U.S. Bond Market ETFU.S. BondsAGG

Charles Schwab ETFs

Fund NameInvestmentsFund Ticker
US Broad Market ETFU.S. StocksSCHB
International Equity Index ETF (SCHF)International StocksSCHF
U.S. Aggregate Bond Index ETFU.S. BondsSCHZ

Is A 3 Portfolio Great For Everyone?

No, but it would work well for most people. Especially if you want to keep your investments simple. It won’t work well for someone who has absolutely no desire to manage their own investments (nothing other than having someone else take care of it for them will).

It also won’t work for someone who would like to pick individual stocks. A portfolio made up of just 3 individual stocks is considered extremely risky since you’re putting all of your eggs in just three baskets.

The main advantages of the Three Fund Portfolio are its simplicity, low costs, broad diversification, ease of rebalancing, and the fact that it won’t underperform the market (since it’ll track the broader market). If these characteristics are attractive to you as you think about your investments, it’s certainly worth looking into!

You also need to have to be aware of any investment minimums for the funds. Some Vanguard Funds have an investment minimum of $3,000, which means might need $9,000 to invest in order to start with a Vanguard 3 fund portfolio. Alternatively, you can just use ETFs since those don’t have minimums and are traded directly on the exchanges.

Do you want to invest but simply don’t have enough money yet? If you aren’t sure how to save enough to get there, you’ll want to read our step-by-step guide to budgeting. It’ll be your first line of defense when it comes to saving and investing more of your money.


What Is A 3 Fund Portfolio?

A simple investment portfolio that uses only 3 assets. Most commonly, these simple portfolios include a US “total stock market” index fund, an international “total stock market” index fund, and a “total bond market” index fund.

Can I Use A 3 Fund Portfolio If My Investments Are Spread Across Different Accounts?

Yes! You have a couple of options. You can create an overall portfolio so that across all of the accounts you only own the 3 assets. Or you can duplicate your 3 Fund Portfolio in each of your investment accounts. It’s common to have your 401K or 403B and IRAs in different accounts, so you aren’t alone.

Can I Use More Than 3 Assets In My 3 Fund Portfolio?

You can use more investments, but remember that part of the benefit of this strategy is its simplicity.

Can I Include Individual Stock In My Three Fund Portfolio?

Traditional 3 fund portfolios don’t include individual stocks. Instead they include mutual fund or ETF investments which include many different stocks and bonds.