Three Fund Portfolio

Investment Summary
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:

  1. 40% of capital allocated to US Stock Market – MSCI US (Mutual Fund VTSMX)
  2. 20% International Stock Market – MSCI EAFE (Mutual Fund VGTSX)
  3. 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)

Three Fund Portfolio

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