The 3-Fund Portfolio

A 3-fund portfolio is a simple, effective investment strategy built around three core asset classes: US stocks, international stocks, and bonds. Each fund in this structure is chosen to represent a major segment of the global market, making the portfolio broadly diversified and easy to manage.

• The US stock fund gives you exposure to the American economy, which remains one of the largest and most influential in the world;
• The international stock fund allows you to benefit from growth and stability in developed and emerging markets outside the US, reducing the risk that comes from concentrating only on one country;
• The bond fund brings stability and income to your portfolio, acting as a buffer against the volatility of stocks.

By combining these three components, you can capture the growth potential of global equities while smoothing out the ride with the relative safety of bonds.

A typical allocation for a 3-fund portfolio might look like this:

You can adjust these percentages based on your personal risk tolerance. If you are more risk-averse or closer to needing your money, you might increase the bond allocation to reduce volatility. If you are comfortable with more risk and have a long investment horizon, you could allocate more to stocks and less to bonds. The key is to match your portfolio to your financial goals and your comfort with market ups and downs.

When you see an allocation output like "40% US stocks, 40% international stocks, 20% bonds," it tells you how your money is spread across different types of investments. This spread, or diversification, is crucial: it reduces the impact of any single market or asset class performing poorly. By holding both US and international stocks, you avoid putting all your eggs in one basket, and by including bonds, you add stability. Diversification helps your portfolio weather market swings and increases the likelihood of achieving steady growth over time.