February 3


Today’s Letter from Grandma Sylvia




Dear Reader,


This is my third letter to you about John C. Bogle.  In this letter I’m writing about portfolios and what’s in a portfolio. I’ll include the portfolios Mr. Bogle was said to have used himself and the several portfolios included in the Bogleheads web sites— web sites dedicated to Mr. Bogle’s philosophy. (I’ll list the web sites of the Bogleheads and the portfolios at the end)


Of all the portfolios, the one I’ll focus on today is a Three-Fund Portfolio.




The Big Picture: Portfolios and Threes


There are many kinds of portfolios: employment portfolios, teaching portfolios, art portfolios, college portfolios, etc.  For these, many times they are called: working, display, or assessment.


Portfolios are an excellent way to display the accomplishments of the portfolio creator, such as samples of an artist’s work over time or with different media.


Financial portfolios are another kind of portfolio.


Investopedia defines financial portfolios as:

 a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art, and private investments…


Because the topic today is a Three-Fund Portfolio, I thought I’d also write, on a more whimsical note, about the number three.  I know there is a solid rationale for why a Three-Fund Portfolio is a good choice, but I thought it would be fun just to look at the number three. Here are some of the things I found about three:


  • From fairytales to Hollywood blockbusters, “the rule of three” (Latin-“omne trium perfectum”) principle suggests things that come in threes are inherently more humorous, satisfying and effective than any other number of things. (Note: web site listed at the end of the post)
  • From our constitution…life, liberty and the pursuit of happiness
  • From psychology: optimistic, average, pessimistic
  • From the Olympic games: first, second, and third place
  • From art: the horizon line should be one-third from the top
  • From China: three is a lucky number because it sounds like the word for life
  • From our planet: third rock from the sun.




A Story

I started investing in individual stocks and found it wasn’t always easy to pick and choose.  When I started using index funds, I realized there were scores of good companies in the funds and I didn’t have to do the research to choose.  The fees were low and the funds were consistent over time.  I liked that.  I also found I could buy many different index funds and, if I bought too many they held much the same thing in each of them.  That didn’t make sense.  A smaller number of funds did the job for me.


Today’s Topic: A Three-Fund Portfolio

Now about a three-fund financial portfolio…

Why three? Why not one or twenty-one or sixty-one?

In fact, some people have portfolios with one fund and other people have dozens of funds.

What I’ve found—and remember I’m not a financial advisor nor do I have any financial training—is that the “best” portfolios don’t have funds with overlapping contents.


Thus, a Thee-Fund Portfolio, consisting of the:


  • Total Stock Market Index
  • The Total Bond Market Index
  • The Total International Stock Market Index


is a good choice.  It’s also simple (Jack Bogle’s idea of The Majesty of Simplicity). It’s passive investing with low fees.


From Investopedia,


Bogle revealed his retirement portfolio allocation has shifted more toward a 50/50 allocation, with 50% in equities and 50% in bonds, away from the standard allocation of 60/40 that he followed for years. As he told the interviewer, “I just like the idea of having an anchor to the windward.” Bogle has indicated his non-retirement portfolio had an asset allocation of 80% bonds and 20% stocks.

He only used Vanguard funds, so most probably the total stock market index and the total bond market index.  (Note: He was wary of international funds and later in his career talked about adding a small percentage of international funds.)


Taylor Larimore has written extensively about a Three-Fund Portfolio.  In a Bogleheads post, he wrote:


After a lifetime of investing since 1950 trying to “beat the market,” I am convinced that a simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated, is an ideal portfolio for most investors.


A Three-Fund Portfolio is one of the many Lazy Portfolios that are simple to create and need little energy from an investor.


The biggest initial decision is what percentage to allocate to each of the three funds.  Often for retirees, a larger percentage is in bonds, with less in the total stock market, and even less in the international market.


It’s fun to read about these lazy portfolios and I’ll put the web sites of interest below.


Here are some quotes about portfolios:



Building a portfolio around index funds isn’t really settling for the average.  It’s just refusing to believe in magic.

Bethany McLean


The most important thing you can have is a good strategic asset mix.  So, what the investor needs to do is have a balanced, structured portfolio—a portfolio that does well in different environments…we don’t know that we’re going to win.  We have to have diversified bets.

Ray Dalio


Every portfolio benefits from bonds; they provide a cushion when the stock market hits a rough patch. But avoiding stocks completely could mean your investment won’t grow any faster than the rate of inflation.

Suze Orman



You’ve always got to think about having some fixed income in your portfolio as well as equities.

 Charles Schwab


Important Idea


♦  A Three-Fund Portfolio of inexpensive index funds is a good choice for beginning investors




Now with the free time I have from not managing my portfolio, I’m going to check my pantry and refrigerator to see what I can make for dinner.  Wish you were here.


Grandma Sylvia