A Three Fund Portfolio Is Simply and May Offer Superior Returns

This video present Mr. Rick Ferri, investment advisor speaking with Morningstar talks about the simplicity of a three-fund portfolio. U.S.-stock, foreign-stock, and bond index funds can constitute a core portfolio with the flexibility to expand into other asset classes if desired, says author and advisor Rick Ferri.

Mr. Ferri suggests that a portfolio could simply consist of the following three index funds: Total Stock Market Index Fund, Total International Stock Market Index Fund and a Total Bond Fund. If this is a taxable account (not a retirement account) Mr. Ferri suggests a Total (intermediate term) Municipal Bond Fund. This investing approach is supported by many people.

As far as allocation goes, he is far less specific. He indicates that there are reasonable arguments for having more or less total allocation to stocks as opposed to bonds. However he does suggest that a heavier allocation to domestic (USA) stocks is preferred. He weight the USA equity portion at about 67% and the International allocation to about 33% of the equity portion of the portfolio.

He also presents the idea of broadening out the three fund portfolio with a TIPS fund, a real estate fund, and the possibility of adding hard assets, like gold, into your portfolio.

My book, Investing For The Rest Of Us, discusses Mr. Ferri’s three fund portfolio as well as several others in greater detail. If you are interested in picking up our asset allocation spreadsheet, please sign up for our newsletter. There’s a link on the right side of the page.

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