How to Create a 3 Fund Portfolio | A Beginner's Guide
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0:00 3-Fund Portfolio
2:22 What is a 3-Fund Portfolio
4:20 Is a 3-Fund Portfolio diversified?
8:21 Historical Returns of a 3-Fund Portfolio
13:42 How to Create a 3-Fund Portfolio
18:00 What mutual funds or ETFs to Use
20:40 M1 Finance & 3-Fund Portfolio
26:28 How to increase returns
A three fund portfolio is a simple approach to investing that, as the name suggests, involves just three mutual funds or exchange-traded funds. In just three funds, an investor can build a diversified, low cost portfolio that's easy to manage.
Popularized by the Bogleheads, the three fund portfolio is one of several "Lazy Portfolios." You don't let the Simplicity fool you. A three fund portfolio has outperformed most comparable actively managed portfolios Over the past several decades. In this article, we'll look at what comprises a 3-fund portfolio, its diversification, its historical returns, and how to easily build a 3-fund portfolio. We'll also look at a few ways you can supercharge the returns with a significant increase to volatility by adding a few more funds to the mix.
#3fundportfolio #bogleheads #lazyportfolios
ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.
I was told to spread my money across different things like stocks and bonds to protect my $750k retirement savings. Now, with the markets being shaky, should I keep adding money to my portfolio or consider other options?
True, I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
In my opinion, it was much easier investing back in the 60s but it’s a lot trickier now, those making consistent profit in these times are professionals reason I’ve been using an advisor for the past 5 years to consistently build my portfolio in preparations for retirement.
My partner’s been considering going the same route, could you share more info please on the advisor that guides you?
Sonya Lee Mitchell maintains an online presence that can be easily found through a simple search of her name on the internet.
She appears to be well-educated and well-read. I ran a Google search on her name and came across her website; thank you for sharing.
Hi Rob,
I’m coming to this video in the middle of the night as I watch over my newborn son. I’ve been thinking a lot about the future and seeing your deep dive and the thought process behind your choices is amazing.
Thank you for taking the time to walk us through this and to provide the links as additional guidance. This is all amazing stuff!
You’ve got a whole new subscriber!
This was one of the best financial videos I've ever watched. Thank you so much.
You should have millions of subscribers. Clear, intelligent, transparent and refreshing! Much appreciated.
I cannot believe this is free. Is just unbelievable you can get this for free. Outstanding work. Happy i found out this youtube channel.
You have one of the very best finance and investing channels on TH-cam and deserve way more subscribers. So sick of all the finance bros! You’re a breath of fresh air
Excellent advice. Investing to me is like losing weight both are simple but not easy. Your temperament is the most important part.
Thanks for such simplicity. Where were you when I was 50 years old. It’s time to educate my children.. Thanks again
Why does this guy seem so honest and trustworthy? Nice presentations.
Fantastic context Bob…. Presented in an exceedingly kind and forgiving way. Thank you.
You're like the wise uncle I never had, Rob! Appreciate the education ✌️
Thank you for the research you do for these super in depth videos. I'm new to the channel and I've been enjoying learning from you. Thank you.
I thoroughly enjoyed this video. I wish I had been taught this back when I started investing. Thank you for taking the time to explain this investing approach clearly. The tempo, tone and graphics of your delivery are perfect. There is no fluff or unnecessary information. You now have a new subscriber.
Currently I'm just being smart and frugal with my money, I'm in the green 47% over the last 23 months and l've accumulated over $70K in pure profits from DCA’ing into stocks, ETFs, dividends and futures. However I’ve been in the red for a month now. I work hard for my money, so investing is making me a nervous sad wreck. I don’t know if I should sell everything, sit and just wait.
Stocks are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are a lot of wealth transfer in this downtime if you know where to look.
@@jamescomb1170 I completely agree. I have been consistent with my profit regardless of the market conditions. I got into the market early in 2019 and the constant downtrends and losses discouraged me, so I sold off. I got back in December 2020 and this time with guidance from an investment adviser who was recommended by a colleague
HOLD hold hold...just leave them!
Very helpful for a single woman who is starting to invest in her children's future. I will recommend your channel to others. I love the page "portfolio visualizer".
Hi Rob, great videos - so informative and easy to understand. Please keep them coming!
I can’t believe I just now found your channel on TH-cam. Thank you for sharing your great knowledge. Subscribed.
Explained clearly and accurately. Was having some confusion around bonds until watching this. Thank you!
Rob, your videos are both, timeless and priceless: please keep them coming!
Excellent video, Rob! You are THE BEST!
I did some sensitivity testing using Portfolio Visualizer on the Bogle Three Fund portfolio. Turns out that while the Mid Cap Value Index has a lower return than Small Cap Value, it also has a substantially lower standard deviation. So instead of having 40/10 Total Market/Small Cap Value mix and going for 30/20 Total Market/Mid Cap Value mix you can have a higher CAGR and a lower standard deviation. In fact, it's the same StDev as only investing in the Total Market for US stocks with a better Best Year (not surprising) and a better Worst Year.
Rather than look at CAGR and STDev over a long period, use the tab on Portfolio Visualizer to compare rolling three and five year numbers.
Great show Rob! Thank you very much for sharing your knowledge.
You are an advisor for the everyman! Great job!
I like this topic and that's what i was looking for. thanks Rob!
Your videos are all straightforward and to the point. Will recommend your channel to my daughter who is just started her career.
Excellent presentation. I am planning on retiring from Federal service in 2022, keeping 5 years of expenses in the TSP G Fund and rolling the rest into an IRA. You’ve given me much “food for thought”.
That is such a great plan. It's tough to set aside funds to earn peanuts when the market is roaring. I know you wrote this a year ago (before the market decline). One of THE biggest risks to a retiree's portfolio is a significant loss at the onset of retirement because the funds can't "grow" back if you have to spend them. If you carved out 5 years worth of expenses and put them in the G fund prior to retiring and prior to the worst start to a year for a 60/40 portfolio ever, you were able to mitigate one of the biggest retirement planning risks. Did you execute your strategy?
@@seetheforestthroughthetreesI apologize for not getting back sooner with an update. I retired May 31, 2022. I actually changed my original plan a bit. Since I have a pension that more than covers expenses, I don’t need to have 5 years in the G Fund. Actually, I’m more aggressive so I have 20% G and 80% in Schwab’s S&P index SWPPX. I don’t plan on making any withdrawals until I turn 62 (in 2 years) and that amount will be approximately 3.3% of my balance. So far so good. I’m up about 16% overall since retiring. Thanks.
Fantastic exactly what I was looking for. Thanks Rob
Thanks Rob, this video is very helpful. I just implemented the 5-Fund Portfolio
I'm in Canada with some USD in a tax-deferred account... wasn't sure how to deploy my cash but this video helps! Thanks again Rob, really appreciate your pragmatic and detailed explanation to deploy a logical (and very simple) strategy. Keep up the great work, you are doing a good service.
Great video Rob. Very informative as are all of your videos. I wish I had seen this years earlier.
How would you edge the market? Would you buy gold? What are best non correlating investments to stocks?
I really liked the info on reits in tax savings account. I’m learning so much on TH-cam, thanks for what you do.
been using M1 for a couple months now and definitely enjoying it. There is a rebalance feature but one thing to keep in mind this will create a taxable event. If you just adjust the percentages you want in each ticker it will eventually balance itself as you invest money into it without creating a taxable event. Amazing feature!
You can create a roth ira or a traditional ira with M1 Finance. So that the taxable events won't happen when you re-balance.
You are experiencing tax events because you are in a Brokerage account and not in a Tax Deferred account - like an IRA or 401(k).
@@Tbay007 What if their Roth IRA is already maxed out so this is a secondary brokerage account?
Great video. Thank you for taking the time to put this together. I've been torn on should I buy the top ten large cap stocks or go with an ETF. The diversification a ETF/Mutual can provide is unbeatable and in today's world cheep too.
Thank you! This was the most informative video I have found. Subbed
Rob, this is so good! You've earned a new subscriber in myself. Thank you for putting it where us goats can get it!
Thank you for that..wish someone had explained this to me 20 years ago. ❤
Thanks the great explanation. You're videos have been so infomative for me. I have started using your 6-fund pie for my genereal investing and implimented the same philosophy with my 401k Funds. I'm using the 120 age rule to calculate the bond percentage, then calculate the equity percentages from the ratio of just the equity funds in the 6-fund pie. Since my 401k does not have a Real Estate Fund, I replaced it with a Mid Cap Blend fund.
Very informative video Rob. Great job! Thanks for sharing…Ed
This video was incredibly helpful. Thank you.
I like your approach. Straight forward & sinple.
You are wonderful, thank you very much. So glad I found you!
Superbly done! Thank you!
Great advice. I'm hammering this type of advice into my kids in their early 20s.
Love M1 Finance.. it’s just so easy to use
My 401 k is in an aggressive mixed which has large, mid, small caps with fixed rate and bond portfolio. It has gotten me about 12-14% returns. I just opened a deferred comp plan which I’ve allocated 90% into an index that mimics the s&p 500 and 10% in short term treasury bonds. I cant wait until next year to compare my deferred comp to my 401k. Good video btw mate
Lol, love the "it's not broken. Let's get back to the portfolio." Thank you for the information.
Such an excellent video. Great simple presentation. Thank you Rob!
Excellent video Rob!
Do sensible; just love that you share your wealth of knowledge and information! 😊
Finally a TH-camr offering great, sincere, simple to understand financial advice w/o ego, partiality or personal gain. Big thanks
You mean besides the credit cards he's selling?
But why the need for bond funds
@@brianmcg321 You think this channel is a charity?
Fantastic content! Exactly what I was looking for. You should have millions of views by now. Anyways Thank you!
This is the best content you have created.
This was so helpful. Thank you.
Best video I’ve seen that breaks down the 3 fund/ETF portfolio. Just sent to our 3 kids - 1 in high school, 1 in college and 1 about to graduate college. Fingers crossed they follow the advise. We have Schwab and TSP accounts - wish they had a one button rebalance option as well. Great feature in M1 Finance. Thanks for the insightful videos
I have TSP, love M1 been using it for over 2 years and open an account for all my 5 kids, hopefully the follow too.
They’re all in Crypto 😂 (hopefully not)!
Great video - keep it simple! Many thanks.
Just found your channel--so I have a lot of "catching up to watch!" I currently have a financial planner that I am paying a pretty penny to--I knew it was too much before I watched your episode on fees eating your retirement savings--so looking into M1, which I had never heard of before I found your channel. We are in retirement for 2 years now. Can you do an episode that would address a "3 Fund Portfolio" for those of us already in retirement? Thanks for sharing your insight with us wanna-be financial experts.
Excellent video. Thank you.
I was very sceptical as I saw the title of the video but it made me curious and at the end it was a video worth watching.
GOOD JOB INFO. WELL DONE. THANK YOU SO MUCH MR BOB
Oh yeah👍.. watched your VTI vs VOO vid. Made my choice. Bought a couple books.. Like to learn about M1 finance.
Great video thanks. Would love to see a video on the Fidelity Zero funds.
This guy is correct imho. The lower the number of funds (or in my case investment trusts) the better, although i would have 4 as a minimum and 8 as a maximum. It is also a lot easier to get in when prices are low after corrections, crashes etc. Also, for this reason don't forget to hold some cash.
just found your this video. I am thankful to you for the clarity and information shared.
Great info!!!
incredible video ! Thank you !
Just found your channel. So far this may be one of my favorite videos of yours. It really highlights the main aspects of investing, be diversified and keep it simple.
Finding your videos to be very thought-provoking for me as someone preparing for an early retirement. What I appreciate is that you make some complex ideas much easier to understand. Thanks for what you do!
Thanks for the info Rob.
Thanks Rob.... 5-Fund portfolio for the taxable, 6-Fund portfolio for the Roths.
Awesome video. Thank You!
This video gave excellent information, thank you sir.
Great video! Thank you!
Rob I would love to have seen you take the 4 and 6 pie and compared it to the 3 fund portfolio in PortfolioAnalyzer
Great video, about one year ago I moved my investments over to Vanguard. The Edward Jones advisor had me in 9 different funds averaging over a 1 percent expense ratio and all were front load fees. Now I am in 4 different funds and I am saving on fees and have the extra working for me not going to the advisor.
How’s it going with vanguard? Thinking of switching myself!
@@Noah4evaa So far I am happy with them. When I retired I am going to stay with Vanguard.
great content. Subscribed!
Very Educative, informative, liked and subscribed, I liked your comparison of different portfolios and asset allocation. I do have these questions 1) Once we created the portfolio with asset allocation, then we put $10,000, among say the 6 fund portfolio, then the M1 Finance automatically purchases those respective Vanguard ETFs ? Questions 2) I have an outside 401k investment, how do I know if it is taxable or not, suppose if you have not sold and elected the re-invest option of the dividends as well, that mean, I won't get taxed, I only get taxed when I sell and if any gains right whether funds or ETFs ?
Great work on all your videos. Would love to get your take on looking at rolling returns to compare portfolios in a future video
Great video!
I have a 3 fund portfolio with Schwab: SWPPX-S&P 500, SWMCX-US MID-CAPS and SWSSX- SMALL-CAPS.
I just have it automated where monthly I contribute equal amount to each index.
VOO performs slightly better than SWPPX
Great video and am a subscriber. You briefly mentioned TSP on this video and was wondering if you could elaborate on that subject. Thx again.
Excellent video. Thank a lot of value from this video
Many thanks Rob. You video and commentary are refreshing. I have three young adult kids and plan to suggest they subscribe as well. Getting started is often the biggest step to long term investing and therefore a simple, reasonable approach with three funds is priceless imo. Great job!!
Thank you, Mr. Berger for a great video! I like the 6 fund approach and Vanguard example funds. I did not see the Small-Cap Value, Real Estate and Emerging ETF examples for Fidelity. Can you recommend them? Kindest regards.
Thank you so much for this video!!
Great videos, very helpful with great explanations of the “why” with data included. Thank you!
Thank you so much for this tutorial !!!
What a fantastic video thank you.
Good info on 3 - 6 fund portfolios. I was reluctant to enter my SSN to create an M1 account just so I could access your portfolio samples.
Very nice. Have been a Vanguard boglehead for decades. Would have been very helpful if you compared the n-fund portfolios in Portfolio Visualizer and explained the difference in standard deviation and sharpe ratio between them. The risk adjusted returns is a big reason to build out the portfolio as you have done with asset classes known to reduce risk due to how much correlation there is between them. Really good stuff though. Enjoy watching your videos and well done explanations.
I've been emulating this with VOO VXF VXUS and BND. Added the VXF to get some mid-small cap exposure. Happy with is so far.
long term returns of VTI is same as VOO+VXF.
Last year VXF did well and many will tend to use small caps.
For simplicity VTI+VXUS+BND is just fine.. sometimes I feel VUG+VXUS+BND is fine
@@JoeC5050 I wasn’t very clear. I use VXF to overweight mid/small cap (compared to VTI
Rob - awesome lesson!!
thanks Rob, wonderful video. Subbed. liked. sharing and studying...
Very informative video, thank you.
Excellent Sharing. Thank you very useful.
Hi Rob,
Just found your channel and already loving your videos. Unfortunately M1 finance is not available outside of the US. Are there any alternatives you would recommend?
Excellent video. I look forward to every new video. I am early in retirement, and now wish I have taken a similar approach to the one shown in this video. I have several brokerage accounts. I have ended up with too many individual investments. I use a spreadsheet to keep track of it all. My best returns have come from simple broad funds that are left alone. My main uncertainty these days is allocation of bonds in low yield and rising rate environment. Thanks again for your great work.
That was awesome 👏 thanks so much
Refreshing advice.
This was very helpful.
Just found your channel yesterday, your videos are so helpful to a newer investor in 50’s. Would love some more videos on getting started late to investing:) Thank you!
I am in my 50s and a new-ish investor as well. Do you have any other good references to pass on to me? Thank you!
THANK YOU SIR 😊
Excellent video! Thank you. Liked and subscribed. Now researching M1 Finance. Im a huge fan of dollar cost averaging and also subscribe to a 5 fund portfolio approach. 1 question...would your strategy change if you encountered a significant windfall in today's down market? Or would you simply invest the funds into the same 5 fund portfolio at the same percentage you typically add to with a dollar cost avering approach?