|A typical Three Fund Portfolio is constructed as follows:
- 40% of capital allocated to US Stock Market – MSCI US (Mutual Fund VTSMX)
- 20% International Stock Market – MSCI EAFE (Mutual Fund VGTSX)
- 40% of capital allocated to US Bond Fund – Barclays U.S. Aggregate Bond Index (Mutual Fund VBMFX)
The Portfolio’s Performance is compared with S&P 500 (Mutual Fund VFINX)
The S&P 500 had a slightly higher Compounded Annual Growth Rate, but the Three Fund portfolio provided a much smoother ride. The maximum drawdown of the Three Fund portfolio was only 21.62% compared to 37.71%. The risk-adjusted returns of the Three Fund portfolio were better than those of the S&P 500, as measured by both the Sharpe Ratio and Sortino ratio.
During Market Crisis and Bear Markets
Through three bear markets the Three Fund portfolio does better than the S&P 500 across the board: better CAGR, small drawdown and superior Sharpe and Sortino ratios.
The bear markets examined were: 1. 1973-1978, 2. 2000-2005 and 2008-2011.