The Three Fund Investment Portfolio
Updated: May 5
What Is The Three Investment Portfolio?
The three investment fund portfolio consists of three index funds. To educate on the subject, an index fund is a type of mutual fund constructed for the purpose of tracking and matching certain benchmarks such as the Standard & Poor's 500 or the Russell 2000 Index. This portfolio contains a mix of stock and bond index funds, going as follows:
70% - Vanguard's Total Stock Market Index (VTSAX)
20% - Vanguard's International Market Index (VTIAX)
10% - Vanguard’s Total Bond Market Index (VBTLX)
Should You Use This Portfolio?
First, by investing in these passively managed funds, the fees are lower than those of actively managed funds. Additionally, these funds also outpace actively managed funds 96% of the time. With higher returns and lower fees, these passively managed index funds prevail as superior over their actively managed mutual fund counterpart.
Secondly, I recommend this portfolio because one invests directly into the market rather than hoping his “professional” will be at the market for him. One minor downfall with this fund investing is that one's portfolio will fluctuate with the market throughout downturns and crashes, but as long as one does not sell in these down periods, he will see favorable returns. To elaborate, over long periods of time, the market has historically produced 8% yearly compounded returns.
The third reason why I recommend this portfolio is because of the diversification and allocation of these three funds. One will invest the bulk of his investment (70%) into the US Stock Market with VTSAX. However, he will also witness returns from emerging international markets because of the 20% investment in VTIAX. This fund will also combat inflation with 10% of the fund invested in VBTLX.
Just to be clear here, I do not have any affiliation with the company of Vanguard. I only recommend them because they have some of the best low-cost mutual funds on the market today.
After one has set up this portfolio, he will now be able to set up automatic deposits so that his investment will keep compounding and growing. Please feel free to utilize this portfolio on your journey to financial freedom.
Disclaimer: I am not a financial advisor, so please review all of this advice with your CFP or financial advisor first.