Three-Fund (Bogleheads)
Bogleheads Three-Fund Portfolio
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
The root idea is John Bogle's. As a Princeton senior in 1951 he wrote a thesis on the economic role of investment companies, which got him hired by Wellington. After being removed from the top job at Wellington in the early 1970s, he founded The Vanguard Group in 1974. In 1975-76 he launched the first index mutual fund for individuals, the First Index Investment Trust, which tracked the S&P 500 and later became the Vanguard 500 Index Fund. It was ridiculed as 'Bogle's Folly'. His argument was that after costs most active managers fall behind a low-cost fund that simply holds the market.
The three-fund portfolio is the extension of that argument to a whole portfolio. It holds a total domestic stock index fund, a total international stock index fund and a total bond market index fund. Bogleheads wiki says it is shorthand for a style of simple portfolio building rather than a fixed recipe: 'there is no magic in the number three'. Advantages it lists are diversification across thousands of securities, very low cost, tax efficiency and easy rebalancing.
Taylor Larimore, a Boglehead and co-author of The Bogleheads' Guide to Investing, was an early advocate. In a 1999 Morningstar posting titled 'Which is better, 15 funds or 4?' he argued that four funds (total stock market, total bond market, total international and a money market fund) could own the securities of every asset class in market proportion. The three-fund version drops the cash fund. Larimore also wrote a later book on the three-fund approach.
The portfolio matters because the market adopted it: Vanguard's Target Retirement and LifeStrategy funds were from 2010 to 2013 essentially three-fund portfolios, and since 2013 four-fund portfolios after adding international bonds (Bogleheads wiki). The split between US and international stocks has changed: in 2010 Vanguard raised international from 20% to 30% of stocks, and in 2015 to 40%.
What is in it
| Vanguard Total Stock Market Index (VTSAX / VTI) | 42% | US stocks |
| Vanguard Total International Stock Index (VTIAX / VXUS) | 18% | stocks outside the US |
| Vanguard Total Bond Market Index (VBTLX / BND) | 40% | investment-grade US bonds |
How we model it
| US large companies (S&P 500) | 42% |
| US bond market (aggregate) | 40% |
| Developed markets outside the US | 18% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| US large companies (S&P 500) | 42% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| US bond market (aggregate) (closest match) | 40% | iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) IE00BDBRDM35iShares Core Global Aggregate Bond UCITS ETF USD (Dist) IE00B3F81409 |
| Developed markets outside the US (closest match) | 18% | iShares Core MSCI Europe UCITS ETF EUR (Acc) IE00B4K48X80iShares Core MSCI Japan IMI UCITS ETF IE00B4L5YX21 |
The idea
Hold the whole market at minimum cost: one fund per basic asset class, decide only the stock/bond split and the US/international split, rebalance occasionally.
How people buy it
Vanguard VTSAX/VTIAX/VBTLX or ETFs VTI/VXUS/BND; equivalents at Fidelity (FSKAX, FTIHX, FXNAX), Schwab (SWTSX, SWISX, SWAGX), iShares (ITOT, IXUS, AGG).
Rebalancing as published
Rebalance occasionally, perhaps annually, to keep the target mix (Bogleheads wiki). Place the bond fund in a tax-advantaged account and the international fund in a taxable one.
Variants
- 64/16/20, 48/12/40, 34/33/33, 32/8/60, 14/6/80 samples on the Bogleheads wiki.
- Rick Ferri's lazy three-fund: 40% total bond, 40% total US stock, 20% total international.
- Equal thirds (Scott Burns Margaritaville-style: US, international, inflation-protected bonds), listed by Bogleheads as 33/34/33.
- Two-fund version: total world stock plus total bond (60/40 Ferri).
- Vanguard four-fund (adds international bonds, 70/30 bond split since 2013).
Criticism
- Some argue small-value tilts and REITs add return, so three funds is too simple (Bogleheads wiki states both views).
- The aggregate bond index is not the 'total' bond market; broader indexes exist (Bogleheads wiki).
- In 2013 Malkiel and Ellis suggested replacing bonds with emerging-market bonds plus high-dividend stocks, which shocked forum members (Bogleheads wiki).
- Low bond yields around 2016 prompted debate on whether bonds should be changed; no consensus (Bogleheads wiki).
- Home bias question: the right US/international split is disputed; a market-weight split would be about 50/50 as of October 2014 per the wiki.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +87.6 % | +22.0 % | −3.4 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −55.4 % | −24.2 % | −61.5 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +145.7 % | +21.7 % | −17.0 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −30.3 % | −28.3 % | −30.3 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +115.5 % | +10.8 % | −17.0 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +510.9 % | +9.3 % | −14.9 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +204.3 % | +11.8 % | −8.8 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +22.7 % | +7.1 % | −9.9 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +100.3 % | +5.2 % | −29.0 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −23.8 % | −12.7 % | −29.0 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +46.6 % | +11.0 % | −10.3 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +1051.4 % | +15.1 % | −19.5 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −13.5 % | — | −19.5 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +5.6 % | — | −10.4 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −2.9 % | — | −5.0 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +15.1 % | +11.1 % | −8.9 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −15.8 % | −6.2 % | −21.3 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +78.3 % | +12.5 % | −3.4 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −26.2 % | −18.3 % | −31.2 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +191.1 % | +10.5 % | −9.9 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −8.0 % | — | −8.0 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +27.7 % | +13.6 % | −11.8 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −16.3 % | −16.3 % | −21.1 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −42.4 % | −6.3 % | +10.1 % | +23.5 % | +79.3 % |
| 3 y (1168) | −25.2 % | −0.4 % | +8.7 % | +15.9 % | +28.2 % |
| 5 y (1144) | −9.0 % | +2.9 % | +8.3 % | +14.1 % | +24.5 % |
| 10 y (1084) | −0.4 % | +4.6 % | +8.2 % | +12.9 % | +16.1 % |
| 15 y (1024) | +2.1 % | +5.7 % | +8.3 % | +12.9 % | +15.2 % |
| 20 y (964) | +3.2 % | +6.2 % | +8.5 % | +12.1 % | +14.5 % |
| 30 y (844) | +6.2 % | +7.5 % | +8.9 % | +10.6 % | +11.8 % |
How it behaved in history
- 1975-1976. First index fund for individuals launched by Bogle (First Index Investment Trust), ridiculed as 'Bogle's Folly'. en.wikipedia.org
- 2010-2015. Vanguard raised the international share of its Target Retirement/LifeStrategy stock allocation from 20% to 30% (2010) and 40% (2015). www.bogleheads.org
Published results (by others)
- Larimore claim that four index funds can own every asset class in market proportion (1999): qualitative www.bogleheads.org
What we could not verify
- The wiki gives several sample mixes; 42/18/40 chosen because the text names it as the example. No single 'official' split exists.
- Bogle's exact launch month (Dec 1975 vs Aug 1976) not confirmed; sources say 1975 introduced and 1976 created.
- No published performance numbers for this exact mix were found.
Sources
- www.bogleheads.org
https://www.bogleheads.org/wiki/Three-fund_portfolio - www.bogleheads.org
https://www.bogleheads.org/wiki/Lazy_portfolios - en.wikipedia.org
https://en.wikipedia.org/wiki/John_C._Bogle - www.whitecoatinvestor.com
https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.