A 3 Fund Portfolio: The Simple Way To Invest

Steve Cummings

The 3 Fund Portfolio

Investing can be quite hard. It takes time, patience, and the right mindset to pick and choose what investments to go with. The easy solution is to hire someone else to do it for you. What if I had a simple way for you to invest? All it takes is creating a 3 Fund portfolio

That is right; we can make investing simple. 

Often considered a lazy portfolio, but a 3 Fund Portfolio may be all you need to create great wealth. Let’s look at it from a pragmatic perspective. Most people do not have the time, patience, or the want to study many different investment vehicles to create a portfolio. The easiest solution is to hire someone to do it for you. At 1% of your portfolio, you would do it I a heartbeat. 

It would be easier for those of us who want to save money if we could take a couple of funds and set it and forget it. Plus, it would save us money from hiring someone. So how can we do this?

That is where the 3 Fund Portfolio comes in. 

What is the 3 Fund Portfolio?

As the name says, a 3 Fund Portfolio has just three funds. It is as simple as picking three things and never having to worry about them. Like picking which pair of white socks you want to wear today. I am all about keeping things simple, and this 3 Fund Portfolio is the way to make it simple. 

Now a fund can be any mutual fund or index fund. You can even use ETFs to create this 3 Fund Portfolio of yours. The great thing is that you can set up the allocations and let it work for you as you continue to invest, making things simple. 

Typically, a 3 Fund Portfolio consists of:

  • U.S. Stocks
  • U.S. Bonds
  • International Stocks

The 3 Fund Portfolio got popularized by a group of people called Bogleheads. This group of people is followers of John Bogle, the creator of Vanguard. John Bogle is the man that created the first index fund in 1976 and created a revolution in the finance industry for making mutual funds cheap that matched the overall market. 

These Bogleheads then tried to create a simple lazy portfolio that could help people have a simple strategy that they could build wealth. It seemed too simple to work, but it became the primary strategy for so many people to create incredible amounts of wealth. 

Warren Buffett often mentions that he would have his wife have a portfolio consisting of 90% U.S. stocks and 10% bonds and invested in 2 funds from Vanguard. He knows how lazy portfolios can help someone out.

What Are the Advantages of a 3 Fund Portfolio?

Index funds sound boring, 3 Fund Portfolios sound boring, so what could this boring strategy offer me? How is this better than the 18 different mutual fund portfolios that my 401k is offering?

1. Diversification

If you want diversification in a portfolio, this 3 Fund Portfolio can help you out. 

First, invest in a total market index fund that tracks the U.S. market like VTSAX or FZROX. These two funds will give you such a broad range of companies that you will have over 2500 different companies with FZROX and over 3700 other companies with VTSAX. You cannot go wrong with having so many companies. 

Next, you will have an allocation with a total market international index fund. This will allow you to have exposure to companies worldwide that are not a part of the U.S. stock market. These can be companies like TSMC or Toyota. You will have exposure to over 7000 different companies with an index fund like VGTSX. 

Lastly, you will have some bonds in your portfolio. Each person is different on how many bonds you will like. Bonds offer some safety and stability in case of bad times within the market. So owning a fund that consists of many different bonds can help with your portfolio. It all depends on you how much you would like within your portfolio. 

With this amount of companies and bonds, the diversification of this portfolio is enormous. If one company fails, it may not wreck your whole portfolio because you have invested in over 10,000 different companies. 

2. The Price of Investing:

Keeping things simple also helps to reduce the price of investing. If you hire someone or have a massive portfolio of different funds with huge expense ratios, it will cost you lots of money. I was talking to someone about their 401k, and they had 18 different mutual funds in it. The expense ratio was anywhere from 0.6%-0.95%. That is like $60-95 per $10,000 invested. That can add up. 

With the 3 Fund Portfolio, you have just three funds. They are usually low-cost index funds like Vanguard index funds or even Fidelity zero-fee funds. These are low-cost. The expense ratios range from 0% to like 0.09% on the fund. That can be like $0-$9 per $10,000 invested. I am no math wizard, but $0-$9 looks way cheaper than $60-$95. If it was a $100,000 portfolio, those fees would be even more significant, like $600-$950, or choose the index funds, which are $0-$90. 

If you want to keep things cheaper, there is no better place to start than a simple 3 Fund Portfolio made out of index funds, and you just can’t beat the price. 

3. The Simplicity of the Portfolio

The 3 Fund Portfolio is simple. You have three funds and a specific allocation that you will keep at. If the allocation for one of the 3 goes up, you can rebalance with simplicity. 

Here is an example of a Bogleheads 3 Fund Portfolio:

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

It is much easier to rebalance. If the U.S. stocks go up, you can sell and buy into bonds or international stocks, and those can make life so much simpler. You can create your own 3 Fund Portfolio with a different allocation as well. Being able to make it simple can really help with wealth building.

You can rebalance at the end of the year instead of doing it throughout the year. Just take an hour at the end of the year to rebalance, and that is it. Make life simpler with the 3 Fund Portfolio.

How to Create a 3 Fund Portfolio

One of the things you need to do when creating your own 3 Fund Portfolio is figuring out the allocation for each category. The allocation of the portfolio is up to you.


You can make it very simple into a 60/40 portfolio which is:

60% stocks and 40% bonds

  • 42% U.S. Stocks
  • 18% International Stocks
  • 40% Bonds

 There is also the more even portfolio of 34/33/33.

  • 34% U.S. Stocks
  • 33% International Stocks
  • 33% Bonds

My 3 Fund portfolio is more like an 88/10/2.

  • 88% U.S. Stocks
  • 10% International Stocks
  • 2% Bonds

It is purely up to you on how you want to make your allocations. Warren Buffett believes that as we invest, we should continue to stay aggressive. As we get older, we can add more bonds, but Buffett still believes in having a more aggressive portfolio. He likes to have a 90/10, and 90% are in stocks, and 10% are in bonds. 

Picking the allocation of your fund is up to you. 

Choose an Institution

Now I am a fan of Vanguard index funds, but there are many other institutions you can choose from. Fidelity creates some significant index funds, and so does Schwab. This is the time to select which institution you would like to go with. 

3 Fund Portfolio with Vanguard:

  • Vanguard Total Stock Market Index Fund (VTSAX)
  • Vanguard Total International Stock Index Fund (VTIAX)
  • Vanguard Total Bond Market Fund (VBTLX)

3 Fund Portfolio with Fidelity:

  • Fidelity ZERO Total Market Index Fund (FZROX) or Fidelity Total Market Index Fund (FSKAX)
  • Fidelity ZERO International Index Fund (FZILX) or Fidelity Total International Index Fund (FTIHX)
  • Fidelity U. S. Bond Index Fund (FXNAX)

3 Fund Portfolio with Schwab:

  • Schwab Total Stock Market Index (SWTSX)
  • Schwab International Index (SWISX)
  • Schwab U.S. Aggregate Bond Index Fund (SWAGX)

So now we have the perfect funds to create your portfolio. You now have the building blocks to make your own. You now need to choose your allocation and create the ideal 3 Fund Portfolio for you and your circumstance.

You can easily make these portfolios in the brokerages or even use a brokerage like M1 Finance. M1 Finance can easily set you up with a 3 Fund Portfolio by picking the funds you want and putting the percentage you want to create. Now they use ETFs, so some suitable Vanguard ETFs (Exchange Traded Funds) that you can use would be:

  • VTI- U.S. Stock Market
  • VXUS- International Market
  • BND- Bonds. 

Other Types of Portfolios:

A 3 Fund Portfolio may not be everyone. Maybe you want to jump into some portfolios that have other assets like international bonds or even REITs. 

4 Fund Portfolio:

You can create your own 4 Fund portfolio by adding a REIT index fund. Vanguard makes a good one, and the ETF is VNQ. This is a REIT index fund. Adding this to your 3 Fund Portfolio can add some added income through more dividends. This may be important to you as you create more money. 

5 Fund Portfolio:

Lastly, you can add an international bond index fund to your 4 Fund Portfolio. This can allow you even more diversification within your portfolio. You take your 4 Fund Portfolio, and you add more bonds from international sources. 

Final Thoughts:

Trying to make investing simple is key to having an effective investment strategy. In life, the more complex something is, the harder it becomes to manage effectively. So as we create an investment portfolio that will help us create wealth, it is best to have a simple diversified portfolio.

Working with a 3 Fund Portfolio allows you have a simple approach to investing. It can help you create a portfolio that can outperform active management portfolios that a financial advisor would operate. So it is good to take a look at your portfolio management. 

3 Fund Portfolios consist of index investing that helps keep costs low while creating diversification. This can be done through investing in ETFs from Vanguard or designing a portfolio through M1 Finance. As you begin your brokerage or retirement accounts, you will have a good gist of your asset allocations to help you make your portfolio. 

Take some time. Figure out if a 3 Fund Portfolio works out for you. If it doesn’t, look at adding other asset classes to help you create a simple lazy portfolio to help you build wealth. 

How do you invest? Do you use a 3 Fund Portfolio?

10 thoughts on “A 3 Fund Portfolio: The Simple Way To Invest”

  1. I am basically rocking a 4-fund portfolio, but a bit of a twist on the classic:

    – $VTI
    – $VXUS
    – $VNQ
    – $USD

    The only big difference is that cash is my hedge, not bonds. The main reason is due to the poor returns of bonds and the ability for me to use my cash as a wedge to allow me to live off of it in a period of low equity returns.

    Great write up!

  2. Keeping it simple is the key! I am basically 90% US Stock, 5% international, 5% cash. Taking on some risk there but young enough to absorb it. And now adding small amounts of crypto even though I should be keeping it simple!

    • That is a pretty simple portfolio. Having a foundation allows you to be riskier as you are younger. I think having the 3 fund portfolio is a step in the right direction. It builds that foundation for you.

  3. Love the “lazy portfolio” idea. One of the key points I feel is to keep things really simple. Most investors end up with a whole spaghetti salad of single stocks, ETFs, and mutual funds. Have three ETFs, maybe even just two, and be done with it. I’d always try to avoid home bias, meaning you should always have regions in your ETF that you have not invested in anyways via your e.g. home property. Personally, I am building my “dream” All-Weather Portfolio of the best buy and hold forever stocks (currently have 40 so far – love the passive income). Its current value is at $600,000 US, paying about $24,000 US in dividends every year! Anyways, keep it up, love your blog! Cheers from Singapore, Noah

    • That is so true Noah. The lazy portfolio simplifies the investments. A lot of investors have portfolios like you said that look like spaghetti. Simplicity makes things easier for people to track without over complicating things.That is amazing on your portfolio. Keep it going!


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