For many new investors, the stock market can be a vast and confusing place. Whether you have $1,000 to invest or $10,000, there are so many different investment options available, that it can be scary to take the first step. Even armed with some basic investment knowledge, many beginners don\u2019t think they know enough to invest money or will be able to find the right investments with stock picking\\individual stocks.<\/p>\n\n\n\n
If this sounds like you, then the three-fund portfolio may be for you. This is a very simple strategy to invest<\/a> your money that will get you into the investing game and headed in the right direction.<\/p>\n\n\n\n The three-fund portfolio is a very simplistic investment strategy. For all the\u00a0investment options\u00a0out there, the stock market can mostly be boiled down to three main categories. Domestic stocks, International stocks, and bonds. Using these three main categories as a guide, the three fund portfolio aims to take advantage of all three by investing in one fund that focuses on each of the investment categories.<\/p>\n\n\n\n The three-fund portfolio can really be implemented by anybody. Also called the\u00a0\u201cLazy Portfolio\u201d, this investing strategy is mostly for those of us who really want to invest, but don\u2019t want to spend a lot of time and effort doing it. This is also commonly known as passive investing. By using a simplified strategy like this, the investor can be \u201clazy\u201d and really use more of a \u201cset it and forget it\u201d method of investing.<\/p>\n\n\n\n The other main use of the three fund portfolio might be a new investor looking to open a brokerage account or other investment account. As mentioned, the stock market can be an intimidating place for new investors, and keeping it simple is a great way to get started. Once you\u2019ve been able to get your feet wet with the three fund portfolio you can always choose to continue on with it or venture out into new methods of investing as well.<\/p>\n\n\n\n There are a few reasons you might want to consider a simple\u00a0investment strategy<\/a>\u00a0such as this. As mentioned already, a big reason is its simplicity. Don\u2019t mistake simple for ineffective though. Just because you\u2019re not out chasing stocks, doesn\u2019t mean you won\u2019t see good returns. Because the three fund investment portfolio invests in the three main areas of the\u00a0stock market<\/a>, you\u2019ll see good returns no matter which sector is doing well. This is due to the diversification of stocks and bonds within the strategy.<\/p>\n\n\n\n Almost every investor will tell you that having a diversified portfolio is essential when investing. Basically the equivalent to \u201cdon\u2019t put all your eggs in one basket\u201d, spreading your assets across the domestic stocks, international stocks, and bonds, will expose you to a broad part of the market and will keep the volatility of your portfolio at a relatively low level.<\/p>\n\n\n\n Another big factor of why you should use the 3 fund portfolio is because it encourages the use of index funds. Index funds are not actively managed like mutual funds or ETFs(Exchange-traded funds) are and are considered to be low risk. Index funds will have much lower net expense ratios (management fees) as well. Historically speaking, over the long term, having an actively managed portfolio by including managed funds won\u2019t outperform index funds, making the\u00a0low-cost index funds\u00a0even more attractive. They won\u2019t have a high yield, but they are great long term investments and with compounding on your side, you can\u2019t go wrong with index funds.<\/p>\n\n\n\n Although the difference in fees may look like a small percentage, that could add up to tens of thousands of dollars over the course of an investing career of 20 to 30 years. No matter who you use, there will always be a variety of index funds. Vanguard, Schwab, T. Rowe Price, and Fidelity, for example, all have their own index funds covering the total stock market.<\/p>\n\n\n\n Finally, time is a big factor in using the 3 fund portfolio as well. Many people are extremely busy these days and figuring out their next few trades isn\u2019t always at the top of their list. Once you\u2019ve implemented your investments in this strategy, you can simply set automatic contributions each month and let them go until you\u2019re ready to take a look again.<\/p>\n\n\n\n Now that we\u2019ve gotten the basics down, it\u2019s time to figure out how to implement the 3 fund strategy. For as simple as it is, you shouldn\u2019t blindly find the first three index funds you come across and call it a day, there is some prep work to be done here.<\/p>\n\n\n\n Figure out your goals <\/strong>\u2013 As with anything you invest in, before doing anything you should figure out what you want out of this investment. Do you want safe low investment returns or<\/a> do you want to get a little bit riskier? Or do you want to take even bigger risks? When determining this, also take into account the time frame of the investment.<\/p>\n\n\n\n If you are young and have 30 years before you\u2019ll need this money back, riskier is typically the way to go. If you are closer to retirement and are just looking to beef up your retirement savings(IRA or 401k) and you don\u2019t want to lose money, then playing it safe might be for you.<\/p>\n\n\n\n Determine Your Allocations \u2013<\/strong>\u00a0Once you\u2019ve figured out how much investment risk you are willing to take, you can figure out how much of your funds you can allocate to each sector of the portfolio. If you are leaning towards\u00a0safer investments you will want<\/a>\u00a0to allocate more towards an index fund that mostly invests in bonds. If you are looking to get bigger returns and take on more risk, shift more of your funds across the domestic and international stock index funds<\/p>\n\n\n\n To give you an idea of how you might allocate your funds, you can apply other common investing allocations according to one\u2019s risk tolerance:<\/p>\n\n\n\n Aggressive <\/strong>Allocation <\/strong>\u2013 Having 80% in stocks and 20% in bonds<\/p>\n\n\n\n Moderate Allocation-<\/strong> Between 50-60% in stocks and 30-40% in bonds<\/p>\n\n\n\n Conservative <\/strong>Allocation \u2013<\/strong> Having 20% in stocks and 80% in bonds<\/p>\n\n\n\n Make it Automatic \u2013\u00a0<\/strong>Once you\u2019ve made your initial investment, don\u2019t forget to make future investments automatically. It\u2019s incredibly easy to get to allocate money elsewhere and struggle to make the same investment manually every month. You\u2019ll always have something else you want to spend the money on. Don\u2019t tempt yourself. It\u2019s just as hard to stop an automatic investment so set that up and don\u2019t look back.<\/p>\n\n\n\n 4% rule<\/strong><\/a> \u2013 The 4% rule has been popular for about 30 years now. Basically, it\u2019s a loose rule saying that when determining your retirement income, if you withdraw 4% of your investments each year, you\u2019ll have enough to live off of for about 30 years.<\/p>\n\n\n\n When determining how to implement the three fund portfolio, you\u2019ll need to determine if 4% withdrawals of your investments will be enough to live or if you\u2019ll want to withdraw higher amounts. If you need to boost returns or are looking to withdraw more, you\u2019ll need to allocate your money into the three funds accordingly.<\/p>\n\n\n\n One of the biggest advantages of the \u201clazy portfolio\u201d is being able to set it and forget it, but that doesn\u2019t mean ignoring it. Periodically check-in when you can for rebalancing. Maybe that\u2019s every few months, once a year, or maybe more, but no you should never leave any investment unchecked for too long.<\/p>\n\n\n\n Financial situations change and priorities shift, and when they do, you need to update your allocations or maybe even one of your investment funds completely. Don\u2019t be afraid to move funds around to best suit your long-term goals and needs.<\/p>\n\n\n\n Investing in the stock market<\/a> is a great way to grow your money. You might be saving for retirement<\/a>, investing for college savings, or just a nest egg. The three fund portfolio is one of the investment strategies many investors can use to start investing or simply be a \u201clazy investor\u201d, but the important thing is to be invested in the first place.<\/p>\n\n\n\n You can always start off using this strategy and\u00a0diversify into new options\u00a0after gaining the necessary knowledge and confidence. Even with its simplicity, make sure you do your research before investing using this strategy too.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" For many new investors, the stock market can be a vast and confusing place. Whether you have $1,000 to invest<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421,3422],"tags":[3452,3435,888,3425],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10035"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10035"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10035\/revisions"}],"predecessor-version":[{"id":10036,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10035\/revisions\/10036"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10035"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10035"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10035"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What is the 3 Fund Portfolio?<\/h2>\n\n\n\n
Who is the 3 Fund Portfolio For?<\/h2>\n\n\n\n
Why Use the 3 Fund Portfolio?<\/h2>\n\n\n\n
How to Start Using the 3 Fund Portfolio<\/h2>\n\n\n\n
Remember to Rebalance<\/h2>\n\n\n\n
Conclusion<\/h2>\n\n\n\n