Introduction to the 4-fund Investment Strategy

The 4-fund investment strategy is a variation of the 3-fund strategy that adds a fourth fund to the mix: an international bond fund. This can help to further diversify your portfolio and reduce your risk.

The 3-fund strategy

The 3-fund strategy is one of the simplest and most popular investment strategies. It involves investing in three different asset classes: domestic stocks, international stocks, and bonds.

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

By investing in these three asset classes, 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.

The 4-fund strategy

The 4-fund strategy is a variation of the 3-fund strategy that adds a fourth fund to the mix: an international bond fund. This can help to further diversify your portfolio and reduce your risk.

International bond funds invest in bonds issued by governments or corporations outside of the U.S. This can help to reduce your risk by providing exposure to a different market.

For example, if the U.S. economy takes a downturn, your international bond investments may help to offset your losses.

Why add an international bond fund?

There are a few reasons why you might want to add an international bond fund to your portfolio. First, it can help to reduce your risk. As mentioned above, international bond funds provide exposure to a different market, which can help to diversify your portfolio and reduce your risk.

Second, international bond funds can offer higher potential returns than U.S. bond funds. This is because interest rates in other countries are often higher than interest rates in the U.S.

Third, international bond funds can provide diversification benefits. By investing in bonds from different countries, you can reduce your exposure to any one country's economy.

How to choose an international bond fund

When choosing an international bond fund, there are a few things you should keep in mind. First, you need to decide what type of bonds you want to invest in. There are two main types of international bond funds: government bond funds and corporate bond funds.

Government bond funds invest in bonds issued by governments. These bonds are typically considered to be less risky than corporate bonds, but they also offer lower potential returns.

Corporate bond funds invest in bonds issued by corporations. These bonds are typically considered to be riskier than government bonds, but they also offer higher potential returns.

Once you have decided what type of bonds you want to invest in, you need to choose a fund that has a good track record. You can look at the fund's historical performance to see how it has done over time.

You should also look at the fund's fees. International bond funds can have high fees, so it is important to choose a fund with low fees.

Conclusion

The 4-fund investment strategy is a good option for investors who are looking for a simple and effective way to build a diversified portfolio. By adding an international bond fund to the mix, you can further reduce your risk and improve your chances of achieving your financial goals.

It is important to do your research and understand the different funds before you decide which one is right for you. You should also consider working with a financial advisor to get personalized advice.