Good investing is boring. It involves buying solid, diversified assets that you can hold onto for a long time, if not for life. If you want to uncomplicate investing, start with three fund portfolio.
The idea is that you can have a low-risk, low-fee, and well-performing portfolio with only three funds:
- A domestic stock index fund
- An international stock index fund
- A bond index fund
With these three funds, you own a small portion of every stock in the world, and you avoid paying any high fees because index funds are low-fee. Plus, since you only have three funds to manage, it’s low maintenance and easy to rebalance when needed.
It’s up to you to decide what percentage of your money you want to invest in each of your three funds. The younger you are, the more you typically want to rely on stocks for long-term retirement savings. In your 20s and 30s that generally translates to somewhere in the vicinity of 80% in stocks and 20% in bonds.
So, for example, say I want to build a three-fund portfolio using Vanguard index funds. My portfolio might look like this:
| Index Fund | Expense Ratio | Allocation % |
| VFIAX (Vanguard 500 Index Fund Admiral Shares) | 0.04% | 75% |
| VTMGX (Vanguard Developed Markets Index Fund Admiral Shares) | 0.07% | 15% |
| VBTLX (Vanguard Total Bond Market Index Fund Admiral Shares) | 0.05% | 15% |
And don’t forget to set up an automatic investment plan for these index funds.
Note: This article is intended for informational purposes only and does not constitute tax advice. For personalized guidance, please consult a tax professional.
