How to Set Up a 3 Fund Portfolio in Vanguard
A 3 fund portfolio is a simple and effective investment strategy, particularly suitable for long-term investors who desire diversification and a hands-off approach. This strategy typically consists of three types of funds: a domestic stock fund, an international stock fund, and a bond fund. Vanguard is an excellent platform for establishing this type of portfolio given its low-cost index funds and user-friendly interface. Here’s a step-by-step guide on how to set up a 3 fund portfolio in Vanguard.
Step 1: Determine Your Asset Allocation
Before setting up your account, it’s essential to determine your desired asset allocation. Asset allocation refers to the distribution of your investments among different asset classes. A common allocation for a 3 fund portfolio is:
- 40% U.S. stocks
- 20% International stocks
- 40% Bonds
However, your allocation should reflect your risk tolerance, investment goals, and time horizon. A younger investor might favor a higher percentage of stocks for growth, while someone closer to retirement may want a heavier bond allocation for stability.
Step 2: Open a Vanguard Account
If you don’t already have an account with Vanguard, visit their website and follow these steps:
-
Choose the type of account you want to open: This could be an individual brokerage account, a retirement account such as an IRA, or a 401(k) if your employer offers it.
-
Fill out the application: Provide personal and financial information, including your name, address, Social Security number, and employment details.
- Fund your account: You can transfer funds from another investment account, deposit a check, or set up a bank transfer.
Step 3: Select Your Funds
Vanguard offers a variety of funds, but for a 3 fund portfolio, you’ll want to focus on the following:
-
Domestic Stock Fund: Consider the Vanguard Total Stock Market Index Fund (VTSAX) or the Vanguard 500 Index Fund (VFIAX). These funds provide broad exposure to the U.S. stock market.
-
International Stock Fund: The Vanguard Total International Stock Index Fund (VTIAX) is a solid choice for gaining exposure to non-U.S. markets, including developed and emerging economies.
- Bond Fund: The Vanguard Total Bond Market Index Fund (VBTLX) offers a broad range of U.S. investment-grade bonds.
Note:
Make sure to check the minimum investment requirements for each fund, as they vary.
Step 4: Invest in Your Selected Funds
Once you’ve chosen your funds, it’s time to allocate your investments according to your pre-determined asset allocation:
- Log into your Vanguard account.
- Go to the “Buy Funds” section.
- Enter the amount you wish to invest in each fund based on your allocation percentages.
- Review your purchases and confirm the transactions.
Step 5: Monitor and Rebalance Your Portfolio
After your 3 fund portfolio is set up, it’s important to periodically review your investments to ensure they align with your set allocation. Over time, market fluctuations could shift your asset allocation away from your target.
To rebalance, you can sell portions of funds that have grown significantly and redirect those funds into the underperforming areas to maintain your intended asset allocation. Rebalancing is typically recommended on an annual basis or if your allocation strays significantly from your target.
Step 6: Set Up Automatic Contributions (Optional)
To help grow your portfolio over time, consider setting up automatic contributions from your bank account into your Vanguard account. This practice will not only help to consistently invest but also takes advantage of dollar-cost averaging, reducing the impact of market volatility on your investments.
Conclusion
Setting up a 3 fund portfolio in Vanguard is a straightforward and efficient way to achieve diversification and invest for the long term. By following these steps, you can create a balanced portfolio that aligns with your financial goals and risk tolerance. With consistent monitoring and occasional rebalancing, your 3 fund portfolio can serve as a solid foundation for your investment journey. Remember, investing is a long-term endeavor, and patience is key to seeing the benefits of your carefully constructed portfolio.
LEARN MORE ABOUT: IRA Accounts
INVESTING IN A GOLD IRA: Gold IRA Account
INVESTING IN A SILVER IRA: Silver IRA Account
REVEALED: Best Gold Backed IRA
Jack Bogle recommended investing little in international stocks and I agree. I mean if you look at the top 10 stocks of the Vanguard International Index Stock Fund, most people wouldn't recognize half of them. The question I ask myself is: if I were to buy individual stocks for my portfolio (instead of buying index funds), would I buy any of these top 10 international stocks? Most likely not. BTW the top 10 stocks are: Taiwan Semiconductor, Novo Nordisk, Tencent, ASML, SAP, Nestle, Novartis, Roche, AstraZeneca, and Shell.
Rob, your information is very helpful. Your set up of a 3 fund portfolio is what many people advocate for their portfolios. Nolan Gouveia, Professor G, has a different approach to a 3 fund portfolio. What are your thoughts about his recommendations for a 3 fund portfolio?
Thanks for the great video. I prefer target retirement funds over 3 fund portfolios for their simplicity and diversification.
I am retired and currently using Vanguard Advisors. Vanguard is making changes in their advisor accounts and will not let me fine tune my international exposure. I have four different bond founds in my Traditional IRA account. Is it possible to use MI Finance to make changes in my holdings (to the 3 fund portfolio) and rebalance my account? I might have the option of using Vanguard Digital Advisors, for a fee, if they will let me control my International exposure. Bottom line I am trying to find an easy way to rebalance my holdings and control my International exposure.
What is the difference between VTI & VTIAX? What are admiral shares?
New to investing. Does Schwabb also work for this?
when you rebalance the portfolio, do you lose money when selling stocks and then buying bonds? I don't know how this works. I want to setup the 3 fund portfolio for my roth IRA but not sure how often to rebalance and then how to do that without losing money by selling shares.
Rob really enjoy your Youtube channel. Wouldn't an investment portfolio of just Berkshire Hathaway make sense it is diversified and has outperformed the S&P. Thanks for your informative videos.
What about fidelity
why do some funds on vanguard say see an adviser.
Would you think it would be reasonable to eliminate the bond or fixed income portion of a portfolio like this if someone is lucky enough to have significant pension income? Yes I realize the portfolio inherently becomes more risky but wouldn't the stable pension income replace Bond exposure in a larger picture? Bills and living expenses are more than being paid by the pension and no need to withdraw any income even during a market downturn
Thoughts appreciated thank you
Hi Bob, another fantastic content! I've been following you for a over a year now and have learned so much on how to invest. I opened a ROTH IRA on M1 last year and would love to hear your opinion on my picks. I am 45 years old and the only think I am second guessing is my allocation %. Would greatly appreciate if you can go over my portfolio: Thank you!!!
Nice video! I was able to build a big income stream investing with a professional broker mrs Helen her strategies are great
@rob Berger Great Video Rob. A few weeks ago I asked for people like you and me with grey hair and nearing retirement about the best platform for investing. You said Fidelity TDA or Schwab because of the features for in retirement people. We only have four accounts but I’m worried about what my wife and/or older kids would do if I dropped and went to the big stock market in the sky… in terms of rebalancing, which account to pull from tax wise etc. Does Betterment have enough positives in that regard to pay the .25? I dropped my advisor because he was 1% so I don’t want to go backwards but also want the comfort knowing things would be fairly automated. Thoughts?
Thanks for clearly explaining the ETF purchasing steps through Vanguard. After debating on buying funds or ETFs for my Roth IRA, I have decided to start with ETFs for now and this video came handy.
Can an emerging market country like china move from emerging markets to developed markets index? And can a developed country move into emerging if it goes backwards far enough? Thanks.
Buy ETFs vs funds, lower taxes
M1 is great for investing and using their pies is easy…I love it! Their backend office operations are lacking and need improvement.
Hi Rob- what are your thoughts on lump sum investing given the current volatility? Looking at VOO/BND/VXUS
Only frustration with M1 thus far is I am unable to link the account to Quicken. I was able to link to Personal Capital. Any once successful linking M1 Finance to Quicken?