What is a Three-Fund Portfolio?

What is a Three-Fund Portfolio?
A three-fund portfolio is a simple investment strategy to maximize your portfolio’s return. The three-fund portfolio is renowned for its simplicity, tax efficiency, diversification, and low-cost. Perhaps the simplest strategy is to put all your money in a target-date fund. It is mathematically certain to out-perform most investors. If you want a little bit more elaborate of a set up than just plowing all your money into a target date fund, this is just one step up in complexity.
The three-fund portfolio is comprised of three pieces that should be low-cost and representative of the entire market:
1) Domestic stocks – usually a total stock market index fund
2) International stocks - International stocks provide diversification from US stocks.
3) Domestic bonds – Bonds are low risk, low reward. They are a relatively safe investment. As you approach retirement, you will want to increase your exposure to bonds.
Advantages
Investing is a compromise between simplicity and control. The three-fund portfolio offers a middle ground between the simplicity of a target-date fund, and the complexity and time consuming work of investing in individual stocks.
The three-fund portfolio prioritizes diversification which is a fundamental concept of investing.
Your investing horizon would determine the allocation of your portfolio. The more time you have to invest, the more weight you would put into stocks.
Works Cited:
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://www.investopedia.com/3-fund-portfolio-401k-5409269
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