Note
This is specific to the US investor.
The three-fund portfolio is popular amongst Bogleheads who are interested in a simple, lazy investment strategy. It generally consists of the two basic asset classes -
- Stocks
- Bonds
Generally, low-cost funds that represent the entire market are chosen for the portfolio. An example ETF portfolio (similar index funds can be used as well) is as follows -
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Total International Stock Market Index Fund (VXUS)
- Vanguard Total Bond Market ETF (BND)
A potential replacement to the bond portion of the portfolio could be a high-yield savings account or Certified Deposits.
The more interesting question would be the percentage of allocations in the three funds. The percentages would depend on the individual and their unique circumstances.
Advantages
- Simple
- Diversification
- Very low cost
- Tax efficient
- No overlap
- Easy to rebalance
- Never underperforms the market