Building Your Portfolio
The Three-Fund Portfolio
The Three-Fund Portfolio
You do not need a complex portfolio. You need a complete portfolio. These are different things.
The three-fund portfolio gives you diversified exposure to virtually every publicly traded company on earth and the entire US bond market with just three holdings.
The Three Funds
1. US Total Stock Market
Owns every publicly traded US company, from Apple to your regional grocery chain.
| Brokerage | Fund | Expense Ratio |
|---|---|---|
| Vanguard | VTI (ETF) / VTSAX (mutual fund) | 0.03% |
| Fidelity | FSKAX | 0.015% |
| Schwab | SWTSX | 0.03% |
2. International Total Stock Market
Owns companies in developed and emerging markets outside the US: Europe, Japan, China, India, and more.
| Brokerage | Fund | Expense Ratio |
|---|---|---|
| Vanguard | VXUS (ETF) / VTIAX (mutual fund) | 0.07% |
| Fidelity | FTIHX | 0.06% |
| Schwab | SWISX | 0.06% |
3. US Total Bond Market
Owns US government and corporate bonds across the yield curve.
| Brokerage | Fund | Expense Ratio |
|---|---|---|
| Vanguard | BND (ETF) / VBTLX (mutual fund) | 0.03% |
| Fidelity | FXNAX | 0.025% |
| Schwab | SWAGX | 0.04% |
Why International?
The US represents about 60% of global market capitalization. If you only own US stocks, you are making a concentrated bet on one country's economy. That bet has paid off exceptionally well for the past decade.
Historically, international and US stocks take turns leading. From 2000-2009, international markets significantly outperformed the US. The US led from 2010-2023. No one reliably predicts which market will lead in the next decade.
Owning both captures global growth and reduces single-country concentration risk.
A Simple Starting Allocation
For a long-horizon investor who can tolerate volatility:
- 70% US Total Market
- 20% International Total Market
- 10% Bonds
This is a starting point, not a rule. Adjust bonds upward as you approach retirement.
You can simplify even further. Vanguard's VTWAX and Fidelity's FZROX/FZILX combinations give you essentially the same result. Some people use a single 'target date' fund and call it done. The specific funds matter far less than actually investing and staying invested.