The Three Fund Portfolio is designed to perform well in most market conditions. Most contain a small number of low-cost funds that are easy to rebalance. The same asset allocation for an extended period of time and contains 30-40% allocation to US Bonds, US Stocks and International Stocks.
Three Fund Portfolio is a simple investment methodology and experiences heavy losses during market corrections and market crisis.
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Investment Performance
Investment Return (?):
9.75%
Volatility (?):
11.40%
Sharpe Ratio:
0.45
Maximum Drawdown:
-21.60%
Investment’s Fundamental Concept:
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.
Other Investment Strategy Characteristics:
Investment Type:
Buy & Hold
Investment Risk:
3/5 Average
Backtest Range:
5-10 years
Rebalancing period:
Monthly
Investment Strategy Markets:
U.S. equities
International equities
US Bonds
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