Comparing 3-Fund Portfolios Over Time (2024)

FAQs

What is the average return of a three-fund portfolio? ›

The Bogleheads Three Funds Portfolio is a Very High Risk portfolio and can be implemented with 3 ETFs. It's exposed for 80% on the Stock Market. In the last 30 Years, the Bogleheads Three Funds Portfolio obtained a 7.83% compound annual return, with a 12.39% standard deviation.

The three-fund portfolio is lazy investing at its best. It's simple, it's proven to have a better long-term track record of gains than picking single stocks and trying to time the market, and it lets you generally "set it and forget it" when it comes to saving for retirement.

Three-fund lazy portfolios

These usually consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market. While the "% allocation" is different from those listed below, these funds typically make up the core of Vanguard's Target Retirement and Lifestrategy funds.

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.

The three-fund portfolio consists of a total stock market index fund, a total international stock index fund, and a total bond market fund. Asset allocation between those three funds is up to the investor based on their age and risk tolerance.

In case there is any question about where I stand, put me down as firmly on the side of those who are ready to retire that strategy for good. The new benchmark is 33/33/33; with your assets divided equally between stocks, bonds and alternatives.

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.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

Investing philosophy

Bogleheads emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions.

Ramsey's recommendation is to invest 100% of your portfolio in stocks, with no allocation to bonds or other fixed-income investments. He believes that over the long term, stocks will outperform other asset classes, and that a well-diversified stock portfolio is the best way to build wealth.

What is the best retirement portfolio for a 60 year old? ›

At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).

About Ray Dalio's All Weather

Ray Dalio's All Weather portfolio is an investment strategy designed to perform well across different economic conditions. The goal of the All Weather portfolio is to generate consistent returns while minimizing risk, regardless of the economic environment.

In general, the international fund should go into a taxable account, the bond fund should go into a tax-advantaged account, and the domestic equity fund should fill in the remaining space. You may need to hold the same (or equivalent) funds in multiple accounts to have ideal asset allocation and asset location.

A Lazy Portfolio is a collection of investments that requires very little maintenance. It's the typical passive investing strategy, for long-term investors, with time horizons of more than 10 years. Choose your investment style (Classic or Alternative?), pick your Lazy Portfolios and implement them with ETFs.

You should therefore only keep as many funds in your portfolio as you're comfortable monitoring. For example, if you hold 10 or 20 different funds, you'll need to keep a close eye on the changing value of all these investments to make sure your asset allocation still matches your investment goals.

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.

Calculating Expected Return

The expected return is calculated by multiplying the weight of each asset by its expected return. Then add the values for each investment to get the total expected return for your portfolio.

A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.

Under this analysis, a portfolio of 70% stocks and 30% bonds would have achieved a 10.5% annualized return. This might not sound too different from the all-stock portfolio's return but, consider what it would mean over the long run.