Three-fund portfolio (Bogleheads)

When it fits

For an investor with a long horizon who prefers few pieces, tolerates the drops of a portfolio with 60% in stocks and wants to review it once a year. The specific mix between stocks and bonds depends on the person and their situation, and this page cannot decide it. It does not suit anyone who needs a portfolio with closed rules from an author, or who wants to limit drops with signals.

The portfolio has no signals. You set it up once, add or withdraw funds as needed and return it to the starting weights every so often. With the site's weights:

1. Set the bond weight. The wiki gives as a common guideline a bond share close to the investor's age, and leaves it as a personal decision. We use 40%, which leaves 60% in equities.
2. Split the equities between the US and international. The wiki says Vanguard raised its international weight reference from 20% to 30% in 2010 and to 40% in 2015. We take 30%: of that 60% in stocks, 30% goes outside the US (18% of the portfolio) and the rest to the US (42%).
3. Rebalance every so often. The wiki suggests doing it infrequently, for example once a year. In the backtest we do it every December.
4. In between, touch nothing. There is nothing to calculate between rebalances.

An example with numbers

With $10,000 the starting portfolio is $4,200 in VTI, $1,800 in VXUS and $4,000 in BND. Suppose, as an invented example, that in one year equities rise to a combined $7,200 and bonds stay at $4,000. The portfolio is worth $11,200 and a 40% bond share would be $4,480. Rebalancing means selling $480 of stocks and buying bonds with it, keeping the internal 70/30 split of the equities. If instead of selling you prefer to add new money, you direct it to the funds below their weight and end up in the same place without selling.

With real ETFs from Mar 2011 to Sep 2026, rebalancing every December and a cost of 0.1% per trade, the site's version returns 7.8% a year, with a maximum monthly drawdown of -21.0%, volatility of 9.2% and a Sharpe of 0.71. The best year was 2019 (+20.3%) and the worst, 2022 (-16.3%). On average it turns over 6% of the portfolio a year.

The S&P 500 bought and held, measured from Mar 1993, gives 10.8% a year with a maximum drawdown of 51%. It is not a clean comparison: it starts earlier and goes through 2008. To see both over the same dates, change the period selector in the table below.

Four precautions about these numbers:

• The history is short. VXUS, the total-market international ETF, has existed since 2011. Earlier we would have had to use substitutes, and we have not done so.
• There is no deep stock market crisis in the period. 2000-2002 and 2008 are left out, so the maximum drawdown you see is not a ceiling on what can happen.
• The weights are ours. Another mix (more bonds, more or less international) would give other numbers.
• It is before taxes. Trading costs are included, taxes are not.

Since it is a portfolio with no parameters to tune, there is no "out-of-sample" period to separate.

Strengths

• Few products. Three total-market funds cover US stocks and bonds and the rest of the world's stocks without having to pick companies or sectors.
• Almost nothing to decide. Once the weights are set, the work is one review a year.
• Minimal turnover, which matters for taxes when buying with ETFs.
• Easy to audit. Anyone can check in a minute whether their portfolio has drifted from the weights.

Limits and criticisms

• There are no canonical weights. This is the main limitation recorded in our specification sheet: the result depends entirely on the chosen split. Any figure you see published corresponds to a specific version.
• Bonds do not always cushion. In 2022 the portfolio fell 16.3% over the year, with stocks and bonds falling together.
• Only about fifteen years of ETF history, with no long stock market crisis inside it.
• Total market does not mean invulnerable. The portfolio follows the market, including when it falls.

1. Decide your weights. Those on this sheet are a starting point, not a personal recommendation.
2. Find a product for each piece: a fund or ETF for US (or global) stocks, another for non-US stocks (or the international part of a global fund) and another for bonds.
3. Set an annual rebalancing date and write it down.
4. In a taxable account, each sale may realise a gain; directing new contributions to the funds below target avoids selling.
5. To work out the orders, use the rebalancing calculator.