What is the best 3 fund portfolio allocation?
Here are a few popular options: An 80/20 three-fund portfolio with 64% U.S. stocks, 16% international stocks, and 20% bonds. This option prioritizes growth and is good for investors with high risk tolerance. An equally weighted three-fund portfolio with 33% to 34% in each asset.
A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund.
A three-fund portfolio aims to diversify your portfolio across three asset classes: domestic stocks, international stocks, and domestic bonds. You can use a three-fund approach in most 401(k) accounts. Investors choose the allocation of funds that suit their goals.
100% Asset Allocation
Another option for the best asset allocation is to use the 100% rule and build a portfolio that's either all stocks or all bonds. This rule gives you two extremes to choose from: High risk/high returns or low risk/low returns.
If you are a moderate-risk investor, it's best to start with a 60-30-10 or 70-20-10 allocation. Those of you who have a 60-40 allocation can also add a touch of gold to their portfolios for better diversification. If you are conservative, then 50-40-10 or 50-30-20 is a good way to start off on your investment journey.
Three-fund lazy portfolios
These usually consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market.
There are some cons, in that you will have less control over what you're investing in, but most people who choose to use the three fund portfolio are okay with that.
To build a three-fund portfolio, invest in a total stock market index fund, a total international stock index fund, and a total bond market fund. These can be either mutual funds or ETFs (exchange-traded funds).
The fund is allotted to these three asset classes in a certain ratio. For instance, it can be 50% in domestic stocks, 30% in domestic bonds, and 20% in international stocks. Moreover, such an investment plan provides freedom of asset allocation to match the investors' long-term financial goals.
A three-fund portfolio isn't complex. It just means choosing one representative fund to include in your portfolio from the domestic stock, international stock and bond categories. These funds can all belong to the same family or come from different mutual fund companies.
What is the best portfolio mix?
Your target asset allocation should contain a percentage of stocks, bonds, and cash that adds up to 100%. A portfolio with 90% stocks and 10% bonds exposes you to more risk—but potentially gives you the opportunity for more return—than a portfolio with 60% stocks and 40% bonds.
The common rule of asset allocation by age is that you should hold a percentage of stocks that is equal to 100 minus your age. So if you're 40, you should hold 60% of your portfolio in stocks. Since life expectancy is growing, changing that rule to 110 minus your age or 120 minus your age may be more appropriate.
Investors in their 20s, 30s and 40s all maintain about a 41% allocation of U.S. stocks and 9% allocation of international stocks in their financial portfolios. Investors in their 50s and 60s keep between 35% and 39% of their portfolio assets in U.S. stocks and about 8% in international stocks.
The Index-Based Aggressive Portfolio allocates more assets to mutual funds that mainly invest in equity securities (including real estate securities) than the Index-Based Moderate Portfolio, and the Index-Based Moderate Portfolio allocates more assets to mutual funds that mainly invest in equity securities (including ...
- Income Portfolio: 70% to 100% in bonds.
- Balanced Portfolio: 40% to 60% in stocks.
- Growth Portfolio: 70% to 100% in stocks.
The most widely used method for allocating scarce things, or resources, in a market economy like ours, is the price system. The price of things is determined by supply and demand.
I put my personal 401(k) and a lot of my mutual fund investing in four types of mutual funds: growth, growth and income, aggressive growth, and international. I personally spread mine in 25% of those four. And I look for mutual funds that have long track records that have outperformed the S&P.
“BlackRock, Vanguard, and State Street are often lumped together for the purpose of considering large passive managers within the U.S.,” Stewart told Institutional Investor.
Ramsey's recommendation is to invest 100% of your portfolio in stocks, with no allocation to bonds or other fixed-income investments. He believes that over the long term, stocks will outperform other asset classes, and that a well-diversified stock portfolio is the best way to build wealth.
- High-yield savings accounts.
- Money market funds.
- Short-term certificates of deposit.
- Series I savings bonds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
What is the best portfolio mix for retirement?
Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when an investor is in their 60s. So, at age 55, and if you're still working and investing, you might consider that allocation or something with even more growth potential.
Both have the same expense ratio and similar dividend yield, so you should choose whichever one you prefer based on the fund's strategy. If you only want to own the biggest and safest companies, choose VOO. If you want broader exposure and more diversification, choose VTI.
Understanding the 10-5-3 Rule
The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%.
They are: (1) Use specialist products; (2) Diversify manager research risk; (3) Diversify investment styles; and, (4) Rebalance to asset mix policy. All boringly straightforward and logical.
How many funds are enough? One thing you should always remember is that a lot of funds in your portfolio doesn't mean you have a diversified portfolio. A portfolio with 15 funds that have overlapping is not diversified. You should have no more than 4 funds in your portfolio.
