Published: January 30, 2026

How to Build a Three-Fund Portfolio for 2026

Why Now

On r/investingforbeginners, the VT vs VTI/VXUS debate is constant. New investors want broad exposure without complexity. The three-fund portfolio offers both.

TL;DR

• The three-fund portfolio combines US, international, and bond exposure
• It offers diversification without overcomplication
• Rebalancing annually maintains your target allocation

What Investors Often Get Wrong

Most beginners think more funds equal better diversification. What they miss is that:

• Over-diversification dilutes returns. Holding 50 different funds often means holding market average.
• Simplicity enables consistency. A simple portfolio is easier to maintain through volatility.
• Asset allocation matters more than fund selection. Your US/international/bond split matters more than which specific funds you choose.

The Three Funds

Fund 1: US Total Market

Covers the entire US stock market. VTI (Vanguard) or ITOT (iShares) work well.

Fund 2: International Developed + Emerging

Covers non-US developed and emerging markets. VXUS (Vanguard) or IXUS (iShares) provide this exposure.

Fund 3: Bonds

Provides stability and income. BND (Vanguard) or AGG (iShares) are standard choices.

Historical Anchor: 2017-2019

During 2017-2019, US stocks significantly outperformed international stocks. Many investors abandoned their international allocation, only to miss the periods where international caught up. The three-fund approach prevents this by maintaining discipline through rebalancing.

Sample Allocations

Aggressive (30s): 70% US / 25% International / 5% Bonds

Moderate (40s): 60% US / 30% International / 10% Bonds

Conservative (50s+): 50% US / 20% International / 30% Bonds

What Would Change My View

If research consistently showed that concentrated single-country portfolios outperformed diversified three-fund approaches over long periods, I’d reconsider. Current evidence supports diversification for reducing regret and maintaining discipline.

Bottom Line

For most investors, the three-fund portfolio provides optimal diversification with minimal complexity.

The rule to remember:

“The best portfolio is one you can actually hold. Simplicity enables consistency.”