Bogleheads 3 Fund Portfolio in 2021

Table of Contents

If you are looking for a portfolio that you can set and forget, you may want to learn more about the Bogleheads Three Fund Portfolio. It is one of the most straightforward portfolios on our list of Lazy Portfolios. Bogleheads are individuals who follow the advice of Jack Bogle, who is considered to be the father of index investing. Jack founded Vanguard which introduced the world to the first index fund. We can say that he is the father of passive investing as well. Check out his Wiki Page: https://en.wikipedia.org/wiki/John_C._Bogle

However, we will not be using index funds in this case to construct this portfolio but will be using a more flexible alternative, ETFs

Idea for this portfolio comes from a book titled The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk 

What Is Included in the Bogleheads Three Fund Portfolio?

As the name suggests, this is an investing strategy that is going to divide your assets across three large classes. They include:

  • 60 percent US Stock Market
  • 20 percent International Stock Market
  • 20 percent US Bonds

     

Importantly, the Bogleheads Three Fund Portfolio does not state that you have to stick to this exact division. Instead, you need to tailor the division of your assets to match your retirement age. In general, the longer your investment horizon, the more heavily your portfolio should be weighted toward stocks than bonds. The reason behind this is that stocks provide a much greater return than bonds; however, they are more volatile. 

For example, if you are still 20 years old, you may want 80 percent of your portfolio to be stocks; however, if you are 60 years old, you may want the majority of your portfolio to be bonds because you do not want your portfolio to dive right before you retire. 

We recommend only using your age as a rough rule of thumb. Your allocation and portfolio choices depend more on risk tolerance, your financial position, other events in your life, and not age alone. 

The Benefits of the Bogleheads Three Fund Portfolio?

In order to understand the benefits of the Bogleheads Three Fund Portfolio, it is important to understand why people are choosing total market funds. The goal is to make this as simple as possible. Instead of trying to find a needle in the haystack, you simply purchase an index fund. Therefore, you buy the entire haystack itself.

Some of the biggest benefits of going with index investing include: 

  • Even professional investors are not able to pick winners that will consistently beat the S&P 500 over 10 years. Therefore, the average investor is going to have a difficult time as well. 
  • You do not have to be a professional investor in order to follow this investment strategy. You simply have to be able to divide your assets across these classes and forget about it.
  • You can tailor the Bogleheads Three Fund Portfolio to meet your specific investment needs based on your age. You can adjust the risk level of your portfolio to match your tolerance. 
  • The vast majority of stocks underperform the market as a whole. Only a few stocks drive massive returns. Therefore, you are better off betting on the entire market than individual stocks.


Keep in mind that this is also a portfolio that includes a lot of international stocks. There are a lot of countries that are still developing. There is simply no single country that is better than the rest. Therefore, you do not want to miss out on these potential returns simply because you invest in the United States alone. It is a good idea for you to target international stock opportunities as well. 

In addition to a relatively straightforward investment strategy that will provide you with great results, there are a few other benefits. These include: 

  • You do not have to rebalance your portfolio very often, which will allow you to save on taxes if you are investing in a taxable account.
  • You will have access to tens of thousands of securities, which will keep your portfolio diversified.
  • You will have a portfolio that is easy to set up. 
  • You will outperform the vast majority of professional investors. 

Are There Any Drawbacks to the Bogleheads Three Fund Portfolio?

Of course, there are a few drawbacks to the Bogleheads Three Fund Portfolio as well. With its simplicity comes increased volatility and not necessarily strong performance vs. some other lazy portfolios

Who Should Use the Bogleheads Three Fund Portfolio?

Ultimately, this is an excellent lazy portfolio for anyone who would like to have a relatively simple portfolio that follows the market with slightly reduced volatility thanks to bonds. Because of its simplicity, you don’t have to rebalance it often, potentially saving even more on fees or taxes if you invest in a taxable account. The Bogleheads Three Fund Portfolio is a great way to do precisely that. 

Composition & Logic

Jack Bogle was the founder of Vanguard. To reconstruct this portfolio we will use popular Vanguard ETFs. It is a simple 3 Fund portfolio, 64/16/20% split.

WeightTickerTicker Info
64%VTI
16%VGTSX
20%BND

Historical Performance vs. S&P500

Key Stats

Let’s compare Bogleheads Portfolio performance to S&P 500. To make it simpler we will compare it to SPY ETF. Here are the results starting in 2008.

Portfolio being so heavily exposed to the stock market pretty much mimics the S&P during the crisis until 2014 when S&P overtook and started growing at a higher rate. This is due to Bogleheads still having 20% in bonds and 16% in international stocks. Bonds will reduce overall portfolio volatility while international stocks provide growth opportunities outside of the U.S

Here is the breakdown of percentage returns by year since 2008.


Various ETFs will contribute differently to the overall portfolio performance both from returns perspective as well as risk. Here is the breakdown of how much each ETF contributed to the portfolio performance.

Asset Breakdown

Asset types we buy when we purchase this portfolio:

Stock sectors we buy into when we purchase this portfolio:

Highest exposure is to Technology sector at 21%, followed by Financial service and Healthcare at 15% and 13%. Lowest exposure is to Utilities at 3% and Energy at 3%.

Fees and Risks

Fees
This portfolio is constructed using ETFs that you can see under composition section. ETFs are professionally managed and carry a fee called MERs. This fee is part of your return so it is not charged separately. Here is the breakdown of the fees.

At 0.05%, this is one of the cheapest portfolios to buy. The most expensive ETF on the list is Vanguard’s total international stock index ETF but weighing at only 16% of the portfolio it doesn’t contribute significantly to the overall cost

Risks
Any investment carries some risk of loss. Risk is captured by portfolio’s volatility.  Here is the summary of how much each ETF contributes to portfolio’s volatility as a % of total. 

Not surprisingly the majority of risk comes from Total Stock Market ETF while being offset by Bonds ETF.

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WeightTickerTicker Info
64%VTI
16%VGTSX
20%BND

Notes on results:

Performance analysis is not of the exact portfolio offered by a 3rd party service. For back testing purposes, portfolios are reconstructed using best available information. 

Past performance is no guarantee of future results, which may vary. Please see our terms of use.

Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time.

All portfolio returns presented are hypothetical and backtested. Hypothetical returns do not reflect trading costs, transaction fees, or taxes.

The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.

The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities.

The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.

CAGR = Compound Annual Growth Rate

Stdev = Annualized standard deviation of monthly returns

The results assume annual rebalancing of portfolio assets to match the specified allocation