What is the 3 Fund Portfolio?

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. 

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.

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?

What Are the Advantages of a 3 Fund Portfolio?

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. 

1. Diversification

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. 

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. 

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.

How to Create a 3 Fund Portfolio

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