Bogleheads Three Funds Portfolio: ETF allocation and returns (2024)

FAQs

Is the 3 fund portfolio good enough? ›

The three-fund portfolio is a sound investing approach, and you can't go wrong with it. If you set up asset allocation appropriate for your age, a three-fund portfolio will most likely perform well. I say "most likely" because nothing is guaranteed with investing, but this strategy is one of the safer options.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

The 5/25 rule is a portfolio rebalancing strategy that aims to maintain a balanced investment portfolio while allowing for some flexibility to capture the potential upside of strong-performing assets. Many people attribute this rule to the legendary investor Warren Buffett.

The Three Fund Portfolio, also called the Lazy Portfolio, is a simple yet popular portfolio amongst passive index investors. It is designed to provide broad diversification across the stock and bond markets while incurring minimal costs, taxes, and overhead.

Cons of a Three-Fund Portfolio

Rebalancing. A three-fund portfolio is not set-it-and-forget-it. You will still need to pay attention to your overall allocation and rebalance when necessary to stay aligned with your investment goals. No room for alternatives.

As of Apr 10, 2024, the Bogleheads Three-fund Portfolio returned 4.41% Year-To-Date and 8.15% of annualized return in the last 10 years.

A leveraged ETF uses derivative contracts to magnify the daily gains of an index or benchmark. These funds can offer high returns, but they also come with high risk and expenses. Funds that offer 3x leverage are particularly risky because they require higher leverage to achieve their returns.

SPY, VOO and IVV are among the most popular S&P 500 ETFs. These three S&P 500 ETFs are quite similar, but may sometimes diverge in terms of costs or daily returns. Investors generally only need one S&P 500 ETF.

"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."

A portfolio is rebalanced at regular intervals, such as annually or quarterly, irrespective of asset price movements. Threshold or price-based rebalancing. A limit is set on how far the portfolio can deviate from your desired target mix, such as a 60/40 stocks-to-bonds mix.

What is the 10 5 3 rule of investment? ›

1. Understanding the 10-5-3 Rule. The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%.

With that in mind, let's look at how often you should rebalance if you use time-based rebalancing. The most common time frame that people use is annual rebalancing. They go in once a year to clean up their portfolio.

Bogle recommended allocating between stocks and bonds based on an investors age and risk tolerance. Younger investors may favor a higher stock allocation, while older investors closer to retirement may shift more assets to bonds. Bogle suggested a reasonable starting point is allocating 60% to stocks and 40% to bonds.

A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund.

The Bogleheads approach begins with an investor deciding on percentage allocations to various asset classes, such as U.S. stocks, international stocks, U.S. bonds, etc. The desired allocations are then implemented using low-cost vehicles which are true to the targeted asset classes.

Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best. Beyond that, it doesn't make sense as there will be a great overlap in the shares owned by your mutual funds.

General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.

So, what's the ideal number of funds? Well, there is no right or wrong answer. It can depend on a number of factors including the number of funds you're comfortable monitoring in your portfolio, your investment objectives and risk appetite.

If advisors built exposure to the U.S. equity market using three funds instead of using a single ticker, they would have gained an additional $4,566 over the past 21 years. This assumes weighting the three funds according to market capitalization.