What is Investing?

Investing Involves Risk

What Can I Invest In?

The Stock Market - Explained

Passive Portfolio Step 1: Pick a Strategy

Passive Portfolio Step 2: Allocate Assets

Passive Portfolio Step 3: Select Securities

Passive Portfolio Step 4: Monitor & Rebalance

Investing in Real Estate

Alternative Asset Classes


Active Investing Example - Dividend Income Portfolio

Advisors may offer asset allocation recommendations across dozens of sub-asset classes, often accompanied by specific fund recommendations for each asset class. This lends the process, which is typically supported by colorful pie-charts and graphs, an element of sophistication—designed to make it seem that doing this on our own is not practical. But if the name of the game is diversification, are there funds out there that already invest in thousands of companies? If such highly diversified funds exist, can’t we simply invest in a handful of those and bypass all the advisor hoopla and associated fees?

The answer to both questions is Yes. Such highly diversified funds exist, and you can elect to invest in a small number of them to gain desired broad exposure. The key, as always, is to keep fees low. Under this approach your only decision as an investor is how much of your nest egg to put into each of the chosen funds.

Vanguard has long been a leader in this space. The firm’s founder, John Bogle,[1] was a passive investing pioneer. Some of Bogle’s devoted fans, who call themselves Bogleheads, champion investments in a three-fund portfolio consisting of:

  • A broad U.S. stock fund
  • A broad fund of international stocks
  • A broad U.S. bond fund

Each fund invests in thousands of securities, giving the passive investor broad exposure to multiple industries and geographies. Some investors add an international bond fund, a TIPS fund for some inflation protection, or a Real Estate fund.

Note that a broadly diversified portfolio of domestic and international stocks already has exposure to real estate, because it includes firms that are active in the real estate sector. For this reason, some investors argue that there is no need for a separate, real estate-only fund. Similar logic can be used to argue that a three-fund portfolio has enough variety in its investments to include firms that would do well under inflationary circumstances, obviating the need for a separate TIPS fund.

In the table below I list some broadly diversified funds which could be used in the aforementioned approach. These funds appear in earlier tables.


Table 9-14: Broadly Diversified ETF Examples





Vanguard Total Stock Market ETF (US equities)

CRSP US Total Market Index


Vanguard Total World Stock ETF (includes small-caps)

FTSE Global All Cap Index

BND (Total Bond Market)

BND Vanguard Total Bond Market ETF (37% in investment grade corp. bonds)

U.S. Bond Market


Vanguard FTSE All-World ex-US ETF

FTSE All-World ex US Index


SPDR Portfolio Developed World ex-US ETF (developed, non-US stocks)

S&P Developed Ex-US BMI Index


Vanguard Total World Bond ETF (investment grade bonds)

Bloomberg Barclays Global Aggregate Float Adjusted Composite Index


To implement the Three-Fund Portfolio all you need to do is to decide how much of your total investable wealth to put into each of three well-diversified funds. You can use Mutual Funds or ETFs, as follows:

Three-Fund Portfolio Using Vanguard Mutual Funds 

  1. Vanguard Total Stock Market Index (VTSAX)
  2. Vanguard Total International Stock Index (VTIAX)
  3. Vanguard Total Bond Market Index (VBTLX)

Three-Fund Portfolio Using Vanguard ETFs

  1. Vanguard Total Stock Market ETF (VTI)
  2. Vanguard Total International Stock ETF (VXUS)
  3. Vanguard Total Bond Market ETF (BND)

You don't have to use Vanguard funds, but these tend to be convenient and it's hard to beat their very low fees.


General Reference: Larimore, T. The Bogleheads' Guide to the Three-Fund Portfolio. Hoboken, New Jersey: John Wiley & Sons, Inc. 2018.


[1] Sadly, Mr. Bogle passed away in 2019.