Three-Fund Portfolio (Taylor Larimore, Bogleheads)
Taylor Larimore's Three-Fund Portfolio, the most popular portfolio on the Bogleheads forum: a US total stock market fund, an international total stock market fund, and a US total bond market fund. This version holds the 80/20 starting mix Portfolio Charts uses, 64% US stocks, 16% international stocks, and 20% bonds, rebalanced once a year.
Designed by Taylor Larimore, 2018. Implemented and tracked by Tactfolio.
| Jan 2011 to Oct 2026 | Strategy | SPY |
|---|---|---|
| Annual return (CAGR) | 10.5% | 14.1% |
| Worst drawdown | −28.1% | −33.7% |
| Sharpe ratio | 0.85 | 0.86 |
| Volatility | 12.8% | 17.0% |
| Annual return since publication (Jun 2018) | 10.9% | 14.9% |
| Dec 1986 to Oct 2026 | Strategy | SPY |
|---|---|---|
| Annual return (CAGR) | 9.6% | 11.2% |
| Worst drawdown | −46.1% | −55.2% |
| Sharpe ratio | 0.74 | 0.67 |
| Volatility | 13.7% | 18.5% |
| Annual return since publication (Jun 2018) | 10.9% | 14.9% |
The Three-Fund Portfolio is a fixed mix of three index funds: one for US stocks, one for stocks in the rest of the world, and one for US bonds. Taylor Larimore made it popular on the Bogleheads forum and wrote it up in a 2018 book. This version holds 64% US stocks, 16% world stocks and 20% bonds, and resets the mix once a year.
Key points#
- The Three-Fund Portfolio holds just three index funds and rebalances once a year.
- Together the three funds own almost every public stock in the world and most US investment-grade bonds.
- Since 2011 it returned about 10.5% a year, ahead of a 60/40 portfolio and behind the S&P 500’s 14%.
- Its worst drawdown was about 28%, in the COVID crash of early 2020.
- It trails most when US large stocks lead the world, as in 2013 and 2021.
What is the Three-Fund Portfolio?#
The Three-Fund Portfolio is a “lazy” portfolio. That means a fixed mix you leave alone and reset now and then. It comes from the Bogleheads, a group of investors who follow John Bogle, the founder of Vanguard. Bogle believed most people do best by owning the whole market at a low cost.
Taylor Larimore turned that idea into three funds. A total US stock market fund owns thousands of US companies, large and small. A total international stock fund owns companies in other countries. A total bond market fund owns US government and company bonds. He described the plan in The Bogleheads’ Guide to the Three-Fund Portfolio, published by Wiley in 2018.
The appeal is in what it leaves out. There is no stock picking, no timing and no fund manager to beat. Costs stay low, and there is very little to do.
How does the Three-Fund Portfolio work?#
The Three-Fund Portfolio has no signals. It holds the same three funds all the time.
| Fund | What it owns | Weight |
|---|---|---|
| VTI | The whole US stock market, large and small companies | 64% |
| VXUS | Stocks of companies outside the US | 16% |
| BND | US government and company bonds | 20% |
- Hold 64% in VTI, 16% in VXUS and 20% in BND.
- At the close of the last trading day of each year, reset all three to those weights. This is called rebalancing.
Larimore does not give one bond share for everyone. He says to pick it from your age, your goals and how much loss you can live with. Many investors use a rough rule of holding about their age in bonds. He suggests keeping about a fifth of your stocks in international funds. This page uses the 80% stock and 20% bond mix that Portfolio Charts takes as his starting point.
Here is a made-up example. Say you put in $10,000. That is $6,400 in VTI, $1,600 in VXUS and $2,000 in BND. By year end US stocks have jumped and bonds have fallen. Rebalancing sells some VTI and buys BND until the mix is back to 64, 16 and 20.
What the backtest shows#
Figures quoted in this article's text were measured on prices through October 15, 2026. The chart and tables are recomputed after every market close.
From early 2011, when VXUS began trading, the Three-Fund Portfolio returned about 10.5% a year. That beat a 60/40 portfolio at about 9.4%, and trailed the S&P 500 at about 14%. A drawdown is how far a portfolio falls from its last high point. Its worst was about 28%, against 34% for the S&P 500 and 21% for the 60/40. The 60/40 had the best risk-adjusted return of the three, helped by its larger bond share.
Its worst drawdown came in the COVID crash, from February 19 to March 23, 2020. It was recovered by early August 2020. In 2022 it lost about 18%, close to the S&P 500’s 18% loss, because stocks and bonds fell together as rates rose. It lagged most when US large stocks led. It gained about 23% in 2013 while the S&P 500 rose 32%, and about 18% in 2021 against 29%.
Since the book came out in mid 2018, it has returned about 11% a year, with the same 28% worst drawdown.
With simulated history, the test starts in late 1986 and returns about 9.6% a year, against 11.2% for the S&P 500. Its deepest simulated drawdown was about 46%, from October 2007 to March 2009 in the financial crisis. It took until early 2011 to recover. That year it lost about 29% while the S&P 500 lost 37%.
These results are hypothetical. They come from past prices after trading costs, not from real money, and the future can look very different. Why past results mislead explains why.
When does the Three-Fund Portfolio struggle?#
- Deep stock market crashes. With 80% in stocks, it falls almost as far as the market in a bad bear market, as in 2008.
- Stocks and bonds falling together. When rates rise fast, as in 2022, the bond fund gives little cushion.
- US stocks leading the world. The international slice holds it back in years when US large companies race ahead.
How to try the Three-Fund Portfolio on Tactfolio#
The live strategy at the top of this page holds these three ETFs and rebalances at each year end. Copy it to change the bond share to fit your age, or to swap in other total market funds. You can also compare it with the Golden Butterfly and the Permanent Portfolio. Both are lazy portfolios with far less in stocks.
Year by year
| Year | Strategy | SPY |
|---|---|---|
| 2026* | 10.5% | 14.1% |
| 2025 | 17.5% | 17.7% |
| 2024 | 16.3% | 24.9% |
| 2023 | 20.3% | 26.2% |
| 2022 | −17.7% | −18.2% |
| 2021 | 17.5% | 28.7% |
| 2020 | 16.7% | 18.3% |
| 2019 | 24.9% | 31.2% |
| 2018 | −5.6% | −4.6% |
| 2017 | 18.8% | 21.7% |
| 2016 | 9.5% | 12.0% |
| 2015 | −0.3% | 1.2% |
| 2014 | 8.4% | 13.5% |
| 2013 | 23.3% | 32.3% |
| 2012 | 14.1% | 16.0% |
| 2011* | −0.1% | 0.3% |
| Year | Strategy | SPY |
|---|---|---|
| 2026* | 10.5% | 14.1% |
| 2025 | 17.5% | 17.7% |
| 2024 | 16.3% | 24.9% |
| 2023 | 20.3% | 26.2% |
| 2022 | −17.7% | −18.2% |
| 2021 | 17.5% | 28.7% |
| 2020 | 16.7% | 18.3% |
| 2019 | 24.9% | 31.2% |
| 2018 | −5.6% | −4.6% |
| 2017 | 18.8% | 21.7% |
| 2016 | 9.5% | 12.0% |
| 2015 | −0.3% | 1.2% |
| 2014 | 8.4% | 13.5% |
| 2013 | 23.3% | 32.3% |
| 2012 | 14.1% | 16.0% |
| 2011 | −0.1% | 1.9% |
| 2010 | 14.2% | 15.1% |
| 2009 | 25.1% | 26.4% |
| 2008 | −29.3% | −36.8% |
| 2007 | 7.4% | 5.1% |
| 2006 | 15.2% | 15.8% |
| 2005 | 7.1% | 4.8% |
| 2004 | 12.5% | 10.7% |
| 2003 | 27.0% | 28.2% |
| 2002 | −13.8% | −21.6% |
| 2001 | −8.6% | −11.8% |
| 2000 | −6.6% | −9.7% |
| 1999 | 20.9% | 20.4% |
| 1998 | 19.8% | 28.7% |
| 1997 | 22.8% | 33.5% |
| 1996 | 15.3% | 22.5% |
| 1995 | 28.0% | 38.0% |
| 1994 | 0.5% | 0.4% |
| 1993 | 14.1% | 9.7% |
| 1992 | 5.5% | 7.6% |
| 1991 | 27.4% | 30.3% |
| 1990 | −5.8% | −3.2% |
| 1989 | 23.0% | 31.5% |
| 1988 | 17.5% | 16.4% |
| 1987 | 5.2% | 5.1% |
| 1986* | −0.1% | −2.3% |
* Partial year.
The rules as implemented
This is the exact tree Tactfolio runs yearly, rebalancing every run, with signals and trades at the close. Open it to inspect or copy it.
Sources and caveats
- Taylor Larimore, The Bogleheads' Guide to the Three-Fund Portfolio (Wiley, 2018)
- Portfolio Charts, Three-Fund Portfolio (the 64/16/20 starting mix)
- Portfolio Charts, FAQ (annual rebalancing assumption)
- ETFs stand in for Larimore's three total market index funds: VTI for US total stock market, VXUS for international total stock market, and BND for US total bond market.
- Larimore sets the bond share by age, goals, and risk tolerance rather than one number, and suggests international stocks at about 20% of the stock share. This version uses the 80% stock, 20% bond mix Portfolio Charts uses as his starting point.
- Rebalanced once a year, as Portfolio Charts assumes for every portfolio.
- Rebalancing happens at the close of the last trading day of each year.
Common questions#
What is the Three-Fund Portfolio?#
It is a fixed mix of a US total stock market fund, an international total stock market fund and a US total bond market fund. Taylor Larimore of the Bogleheads made it popular and wrote a book on it in 2018.
What ETFs are used for the Three-Fund Portfolio?#
This version uses VTI for US stocks, VXUS for international stocks and BND for bonds. Other total market funds can stand in, such as ITOT, IXUS and AGG, or the matching mutual funds.
What is the best allocation for a Three-Fund Portfolio?#
There is no single best mix. Larimore says to set the bond share from your age, goals and comfort with losses, and to hold about a fifth of your stocks abroad. This page uses 64% US stocks, 16% world stocks and 20% bonds.
How often should you rebalance a Three-Fund Portfolio?#
This version rebalances once a year, at the last close of the year, as Portfolio Charts assumes for every portfolio. Between rebalances the weights drift with prices.
Is the Three-Fund Portfolio better than a target date fund?#
They hold much the same things. A target date fund holds a similar mix of index funds inside one fund and shifts toward bonds as you age. The Three-Fund Portfolio lets you pick the mix yourself and can cost less, but you rebalance it yourself.
Can I automate the Three-Fund Portfolio?#
Yes. Copy the live strategy and run it in Trade, on a Tactfolio paper account or in your own Alpaca account (paper or live). Trade runs it on a daily schedule, and it only trades at the yearly rebalance. It is long only and uses US-listed ETFs. You choose the starting balance.
Keep exploring
Run it automatically
The funds it holds
- VTI ETF: fees, returns, drawdowns and holdings
- VXUS ETF: fees, returns, drawdowns and holdings
- BND ETF: fees, returns, drawdowns and holdings
How its funds compare
- VTI vs VXUS: fees, holdings and returns compared
- VOO vs VTI: fees, holdings and returns compared
- AGG vs BND: fees, holdings and returns compared
- VT vs VTI: fees, holdings and returns compared
Learn the ideas behind it
- ETF vs index fund: what actually differs
- Portfolio rebalancing: calendar vs threshold methods
- S&P 500 index funds: how to pick one and what they cost