Bogleheads 3 and 4 Fund Portfolio: Backtest and Performance Analysis

Jack Bogle’s famous advice was to avoid searching for individual stocks, sectors, or markets that may perform better and simply invest in the entire market. This means using index funds to build a diversified portfolio. The Bogleheads 3 Fund Portfolio (global stocks, U.S. bonds) and Bogleheads 4 Fund Portfolio (global stocks, global bonds) are good examples of the approach. Let’s find out what they are about.

Boglehead 3 Fund Portfolio is a simple, low-cost investment strategy that consists of three index funds: a U.S. Total Stock Market Index Fund, an International Stock Market Index Fund, and a U.S. Total Bond Market Index Fund. Boglehead 4 Fund Portfolio adds Total International Bond Market Index Fund to the mix. Both portfolios aim to provide diversification and long-term growth, with a focus on minimizing costs.

In this post, we take a look at the Bogleheads 3 Fund Portfolio (global stocks, U.S. bonds) and Bogleheads 4 Fund Portfolio (global stocks, global bonds). We end the article with backtests of both portfolios.

What is the Bogleheads 3 Fund Portfolio?

The Bogleheads 3 Fund Portfolio is a low-cost investment strategy that was popularized by the Bogleheads, a group of investors who follow the philosophy of investing legend Jack Bogle. The strategy involves investing in three index funds that provide broad exposure to the stock and bond markets. The three funds are:

  • U.S. Total Stock Market Index Fund: This fund provides exposure to the entire U.S. stock market, including small, mid, and large-cap stocks.
  • International Stock Market Index Fund: This fund provides exposure to stocks in developed and emerging markets outside of the U.S.
  • U.S. Total Bond Market Index Fund: This fund provides exposure to the entire U.S. bond market, including government and corporate bonds.

The Bogleheads 3 Fund Portfolio is designed to be a simple, low-cost, and diversified investment strategy. By investing in the three funds, investors can potentially capture the long-term growth of the stock and bond markets while reducing the risks associated with investing in individual stocks or bonds. The strategy is based on the idea of “buy and hold” investing, which involves making regular contributions to the portfolio and holding the investments for the long term.

How to Invest in a Bogleheads 3 Fund Portfolio

To invest in a Bogleheads 3 Fund Portfolio, follow these steps:

  1. Open a brokerage account: Open an account with a brokerage firm that offers the index ETFs you need to construct your portfolio.
  2. Choose your funds: Select a U.S. Total Stock Market Index Fund (such as Vanguard Total Stock Market- VTI), an International Stock Market Index Fund (such as Vanguard FTSE All-World ex-US – VEU), and a U.S. Total Bond Market Index Fund (Vanguard Total Bond Market – BND).
  3. Determine your asset: Decide how much of your portfolio you want to allocate to each of the three funds. A common allocation is to have 50% of your portfolio invested in the U.S. stock market, 30% invested in the international stock market, and 20% invested in bonds.
  4. Start investing: Start by investing a lump sum or setting up a regular contribution plan. If you’re starting with a small amount, consider using dollar-cost averaging to reduce the impact of market volatility.
  5. Monitor and rebalance: Over time, the values of your index funds may change and your asset allocation may become imbalanced. Consider periodically rebalancing your portfolio to maintain your target allocation.

What are the Benefits of a Bogleheads 3 Fund Portfolio?

The Bogleheads 3 Fund Portfolio has several benefits, including:

  • Diversification: The portfolio provides exposure to multiple asset classes and markets, reducing the risk of investing in any one individual stock or market.
  • Low costs: By investing in low-cost in