A three-fund portfolio is an investing approach built around just three broad index funds, giving you exposure to most of the global stock and bond markets without the complexity of managing dozens of holdings. It’s especially appealing if you want long-term growth, low fees and a strategy you don’t have to constantly monitor. For many investors, it’s one of the easiest ways to build a well-diversified portfolio with minimal effort.
What is a three-fund portfolio?
A three-fund portfolio is a simple, diversified investing strategy built from three core index funds: a total US stock market fund, a total international stock market fund and a total US bond market fund.(1)This approach focuses on broad market exposure, low fees and long-term growth, without requiring constant rebalancing or complicated fund picking.
It’s especially popular among followers of John Bogle and the Bogleheads community, who value minimal costs and wide diversification as the foundation of a strong portfolio.(2)
How to build a three-fund portfolio
To build a three-fund portfolio, you combine three broad index funds that collectively cover most of the global stock and bond markets. Start with a total US stock market index fund as the core growth engine, then add a total international stock market fund to diversify beyond the US. Finally, include a total US bond market fund to provide stability, income and a buffer during market downturns.
From there, decide how much to allocate to each fund based on your goals and risk tolerance. More aggressive investors often tilt heavily toward stocks, while more conservative investors increase their bond allocation to reduce volatility. Once your mix is set, periodic rebalancing, whether quarterly or annually, helps keep your portfolio aligned with your target strategy as markets move.
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Benefits and disadvantages of a three-fund portfolio
Low cost. Because it relies on index funds, the portfolio typically has very low expense ratios, helping investors keep more of their long-term returns.
Highly diversified. A total US market fund, international fund and bond fund together provide exposure to thousands of securities across global markets, reducing risk through wide diversification.
Disadvantages
Limited customization. Because it uses only three broad funds, investors who want exposure to specific sectors, factors or alternative assets may find it too basic.
May not match every risk profile perfectly. The simple stock-bond mix might not offer enough flexibility for investors with highly specific time horizons or income needs.
International and bond performance can lag. Relying on a total international fund and a broad bond fund means returns may lag in certain market environments, which some investors find frustrating.
Who is the three-fund portfolio right for?
A three-fund portfolio is ideal for investors who want a simple, low-maintenance strategy that still delivers broad diversification.
It works especially well for long-term, buy-and-hold investors who prefer passive management, value low fees and don’t want to spend time picking individual stocks or tracking niche funds. It’s also a strong fit for beginners who want a clear, straightforward starting point and for experienced investors who want to streamline an overly complex portfolio.
Bottom line
A three-fund portfolio offers an easy, low-cost way to build a diversified investment plan without overthinking it. If you’re looking for a straightforward strategy that supports long-term growth with minimal effort, it’s a proven place to start. Once you’re ready to build your own portfolio, you can compare your options with our guide to the best brokerage accounts.
Frequently asked questions
A good three-fund portfolio typically includes a total US stock market index fund, a total international stock market index fund and a total US bond market index fund. Many investors use well-known, low-cost options from providers like Vanguard, Fidelity or Schwab, choosing allocations that match their goals and risk tolerance. A common starting point is something like 60% US stocks, 20% international stocks and 20% bonds, though the best mix depends on your personal timeline and risk tolerance.
Summer Nevins is a freelance personal finance writer for Finder. After almost a decade of working in banking and financial services, she quickly realized her true passion is to educate consumers about the complicated facets of all things money. Summer has channeled her passion for personal finance education into writing and since 2020 has written for various clients and publications. She’s recently been working with Influencers like Erika Kullberg and continues to contribute to other finance publications. She holds a BS in Management and Finance and an MBA specializing in Data Analytics from Western Kentucky University.
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