Investors looking for simplicity often turn to the famed Bogleheads Three-Fund Portfolio. As its name suggests, the portfolio holds only three funds, making it the ideal core portfolio for fuss-free investing. The three-fund portfolio typically holds the following:
- A US total stock market fund
- A total international stock fund
- A total US bond fund
Why the Bogleheads three-fund portfolio works
The Bogleheads three-fund portfolio has all the hallmarks of a good investment strategy: diversification, low cost, and simplicity.
First, despite holding just three funds, the portfolio is incredibly well diversified. It provides exposure to thousands of stocks and bonds across the world. As such, it’s much less risky compared to a portfolio of individual stocks.
Since the Bogleheads three-fund portfolio is usually built using low-cost index funds or exchange-traded funds (ETFs), your overall investing costs are kept low. For instance, the Vanguard Total Stock Market ETF (VTI) is a popular option that’s used for broad US stock exposure. Its expense ratio is 0.03%, meaning you pay just 30 cents for every $1,000 you invest in VTI each year.
Who is the three-fund portfolio suitable for?
If you’re new to investing and want to build your own “set-and-forget” portfolio, the Bogleheads three-fund portfolio is a good starting ground. You control the investments you put your money in, and you decide exactly how much to allocate to each fund.
The three-fund portfolio is also a great approach if you want to invest with zero effort. There are no complex strategies to follow and no need to keep track of multiple investments. All you need are three ETFs that offer exposure to the total US stock market, the total international market and the total bond market.
For more advanced investors, the Bogleheads three-fund portfolio can serve as an ideal core investment too. You can complement it by adding ETFs with targeted exposure to certain sectors or trends. For example, you could add an emerging market ETF or one focused on ESG (environmental, social, and governance) factors.
What ETFs can you use?
While the Bogleheads three-fund strategy calls for US stocks, international stocks, and bonds, the exact funds to use are up to you.
Here are some ETFs you can consider. Most of these options can be found on the Syfe Select platform. The international equity ETFs listed below exclude US exposure to maintain a more globally diversified stock allocation.
Popular US ETFs
- Vanguard Total Stock Market ETF (VTI): Exposure to the entire US equity market
- Vanguard S&P 500 ETF (VOO) : Exposure to the 500 largest US stocks
- iShares Core S&P 500 UCITS ETF (CSPX): UCITs exposure to the 500 largest US stocks
Popular international ETFs
- Vanguard Total International Stock ETF (VXUS): Exposure to global stocks outside the US
- SPDR® MSCI ACWI ex-US ETF (CWI): Exposure to large and mid cap global stocks outside the US
- SPDR Portfolio Developed World ex-US ETF (SPDW): Exposure to developed market stocks outside the US
Popular bond ETFs
- Vanguard Total International Bond ETF (BNDX): Exposure to investment-grade global bonds
- Vanguard Total Bond Market ETF (BND): Exposure to the broad, investment-grade US bond market
- iShares Core U.S. Aggregate Bond ETF (AGG): Exposure to the total US investment-grade bond market
How to build the Bogleheads three-fund portfolio with Syfe Select
You can create your three-fund portfolio by buying your chosen ETFs through a broker. An easier way however is through Syfe Select, Singapore’s first fully customisable ETF portfolio builder.
One key aspect is that Syfe does not charge any brokerage fees. If you’re planning to invest monthly in your three-fund portfolio, Syfe Select is a more cost effective option compared to buying three ETFs each month on a brokerage platform.
Here’s a sample three-fund portfolio created on Syfe Select. You can set the allocation of each ETF as you prefer. In this example, we’ve gone with the traditional Bogleheads allocation of 80% stocks and 20% bonds.
However, you should determine your own asset allocation by considering factors such as your age, risk appetite, time horizon and investment goals.
Syfe Select provides additional analyses such as the overall top holdings or geographical exposure of your created portfolio, as well as its historical returns. Such insights are not available through conventional brokers.
The Bogleheads three-fund portfolio is one of the most popular among investors, and for good reason. It is an easy, low-cost, and diversified way to invest. You can stick with your three-fund portfolio for the long-term, or supercharge it by adding complementary satellite investments.
Check out the final article in our core satellite investing series to learn how.