Introduction to the 3-Fund Investment Strategy

The 3-fund investment strategy is a simple and effective way to build a diversified investment portfolio. It involves investing in three different asset classes:

• Domestic stocks: This includes stocks of companies that are listed on U.S. exchanges.
• International stocks: This includes stocks of companies that are listed on exchanges outside of the U.S.
• Bonds: This includes debt securities issued by governments or corporations.

The 3-fund strategy is based on the idea that by investing in a variety of assets, you can reduce your risk and improve your chances of achieving your financial goals. For example, if the stock market takes a downturn, your bond investments may help to offset your losses.

There are a number of different ways to implement the 3-fund strategy. One popular option is to invest in three index funds:

• A U.S. stock index fund: This fund will track the performance of the U.S. stock market as a whole.
• An international stock index fund: This fund will track the performance of the global stock market.
• A bond index fund: This fund will track the performance of the U.S. bond market.

The specific allocation of your 3-fund portfolio will depend on your individual circumstances and risk tolerance. However, a common starting point is to allocate 60% of your portfolio to stocks, 30% to bonds, and 10% to international stocks.

The benefits of the 3-fund investment strategy

The 3-fund investment strategy offers a number of benefits, including:

• Simplicity: The 3-fund strategy is a very simple way to build a diversified portfolio. You only need to invest in three funds, which can make it easier to track your investments and make changes to your portfolio as needed.
• Effectiveness: The 3-fund strategy has been shown to be an effective way to reduce risk and improve your chances of achieving your financial goals.
• Low cost: Index funds are typically very low-cost, which can help you to save money on your investment fees.
• Tax efficiency: Index funds are typically tax-efficient, which means that you may pay less in taxes on your investment earnings.

How to implement the 3-fund investment strategy

There are a number of different ways to implement the 3-fund investment strategy. One popular option is to invest in three index funds:

• A U.S. stock index fund: A U.S. stock index fund will track the performance of the U.S. stock market as a whole. This is a good way to get exposure to the largest and most liquid stock market in the world.
• An international stock index fund: An international stock index fund will track the performance of the global stock market. This is a good way to get exposure to companies from other countries, which can help to reduce your risk.
• A bond index fund: A bond index fund will track the performance of the U.S. bond market. This is a good way to get exposure to fixed-income securities, which can help to reduce your risk and provide income during retirement.

Once you have chosen your index funds, you will need to decide how much of your portfolio to allocate to each fund. A common starting point is to allocate 60% of your portfolio to stocks, 30% to bonds, and 10% to international stocks. However, your allocation will depend on your individual circumstances and risk tolerance.

Where to invest your 3-fund portfolio

You can invest your 3-fund portfolio in a number of different places, including:

• A brokerage account: A brokerage account is a type of investment account that allows you to buy and sell stocks, bonds, and other investments.
• A 401(k) plan: A 401(k) plan is a retirement savings plan that is offered by employers.
• An IRA: An IRA is an individual retirement account that allows you to save for retirement on a tax-deferred basis.

Conclusion

The 3-fund investment strategy is a simple and effective way to build a diversified investment portfolio. It is a good option for investors who want to keep things simple and who are looking for a way to reduce their risk.

If you are interested in learning more about the 3-fund investment strategy, there are a number of resources available online and in libraries. You can also talk to a financial advisor to get personalized advice.