Passive investing is a mechanical process which does not require fancy math or rocket science. Advisors can access more sophisticated asset allocation algorithms than we can, yielding recommended allocations across dozens of asset classes, but the bottom line, after considering inherent calculation imprecision, is that we can do quite well by sticking with fairly simple allocations. An extreme version of this is presented by adherents of John Bogle, the legendary founder of Vanguard Inc., and passive investing pioneer.
Bogle’s followers often refer to themselves as Bogleheads, and many of them believe in the concept of a three-fund portfolio consisting of:
Each fund invests in thousands of securities, giving the passive investor broad exposure to multiple industries and geographies.
Under this approach your only decision as an investor is how much of your nest egg to put into each of the three funds. Subsequently, all you do is monitor and rebalance.