How To Build A 3 Fund Portfolio (The Lazy Portfolio)

hey everybody welcome back to whiteboard finance my name is marco and i'm here to help you master your money and build your wealth in today's video we're going to be talking about the three fund portfolio aka the lazy portfolio so this is simply just a very popular low-maintenance way to structure an investment portfolio whether it's for a retirement account or for a taxable account or just general investing if you will so basically i wanted to ask you before i get into this video when was the last time that you either rebalanced or created some sort of structure or strategy for your investment portfolio are you simply just picking random stocks because you're familiar with the brands you wear nike running shoes so you buy nike stock you have an apple iphone so you buy apple stock that's probably not the best long-term strategy in terms of investing i'm not saying it's bad but i probably wouldn't recommend that for long term so in this video we're actually going to talk about what the three fund portfolio is the benefits of a three fund portfolio how to actually build one and then finally as always my thoughts at the end of the video stay tuned okay so what is the three fund portfolio so very simply put it is a portfolio comprised of three different asset classes you have u.s stocks u.s bonds and international stocks so you're probably wondering to yourself hey marco so all i need to do is buy you know nike a us bond and some international stock and i have a three fund portfolio right i'm doing this the right way right unfortunately no you're not because this very specifically invests in three index funds so this is low cost index funds so if you don't know what an index fund is it's essentially a basket of stocks that tracks or mimics an index so for example we're going to be tracking u.s stocks us bonds and international stocks using these three index funds which i'll explain later in the video the beauty of this is that it provides great diversification while matching the overall market returns historically and then it also prevents you from making emotional or stupid trading mistakes because you see some high flying tech stock that your neighbors getting rich off of this is a more balanced long-term approach but there is nothing wrong about getting rich off of a high-flying tech stock but that's not the conversation this video so with that being said now that you know what makes up this portfolio let's talk about the benefits and then we're going to actually teach you how to build one of these things okay so what are some benefits of the three fund portfolio so we have three major ones and potentially a bonus one which i'll get to number one is what i just mentioned diversification so the typical three fund portfolio depending on what these index funds track or what they hold is you're typically going to be holding 11 000 plus different stocks so the reason is because the two funds that i'm going to tell you about after we actually create one of these things actually hold typically 11 000 plus different stocks now number two is the super low fees since we are using index funds i'm going to be talking about vanguard index funds specifically they have super super low expense ratios expense ratios is just a fancy financial term for fees meaning that you would typically pay a financial advisor one percent per year on the assets under management with this you're probably going to be in the neighborhood of 0.03 percent per year that's a 97 basis point difference and then number three you have easy rebalancing or easy maintenance so once we establish the different criteria of how much we want to have in terms of u.s stocks us bonds and international stocks you can actually easily rebalance that number or weight to get back to what your allocation goals are so it's really easy to do that and then finally the bonus one is that it's really easy to monitor understand and maintain so without further ado let's get into did you catch that without further ado let's get into actually how to create one of these things okay so how do you build a three fund portfolio this is the entire point of the video so you're probably looking at the whiteboard right now with a bunch of different numbers and letters and all this stuff scroll scrawled across the board you're probably getting intimidated uh trust me this is not that complicated let me explain so the number one caveat to investing is understanding what your strategy is what is what are your priorities what are your goals why are you even investing so typically the main factors is your age the time frame in which you want to invest and also the amount of risk you want to take on okay so if you're someone who's 20 years old and you have a ton of time and you're very you have a big appetite for risk you may go 100 stocks in your portfolio and you're going to forget about the bonds completely that defeats the point of a refund portfolio however i'm just using that as an example if you're someone in midlife you want to be a little bit more moderate if you're someone who's older in life you don't have that much time left on earth it may make sense to be a little bit more conservative with more bonds so there's typically three portfolios here we have an 80 20 which means 80 percent is stocks 20 percent is bonds we have an equal three fund which is 33 33 33 remember we have u.s international and u.s bonds and then we have a 20 80 which is 20 stocks 80 bonds that's definitely the most conservative out of all these three a simple rule of thumb is to take the number 110 minus your age okay so if you're 20 years old 110 minus 20 is 90. 90 of your portfolio should be in stocks or equities okay that is a fair metric or at least a good starting point so basically what we have here is is that i always told you that in this video i'm going to tell you exactly what funds you know comprise of this three fund portfolio it's the ones that are low cost index funds so what are some examples so i'm going to give you a mutual fund these are all vanguard products but there's schwab equivalents there's fidelity equivalents you know you can figure this out on your own i'm using vanguard as an example because they have super low funds and they've performed pretty well over time so for the us stocks we would use either vt sacs like sax like saxophone or vti so vt sex is the fund vti is the etf okay for international stocks we would use v t i a x or v x u s and then for u s bonds we would use v b t l x or bnd the etf equivalent so what you do is you basically um i don't want to erase all this because it took forever to write but if you picture a pie like an m1 finance that's why i recommend m1 finance for beginners it's super easy to set up uh check out my free training down below if you haven't already if you picture a pie and you want to do an 80 20 portfolio so let me just carve out what's like 20 let's pretend that's 20 that would be us bonds so this would be bnd make sense and then you would do something like a split of between the u.s stocks and also the international stocks so for example if i want to use the 80 20 64 of this portfolio let me just take like this slice right here just pretend this is 64. would actually go to the u.s stocks so let's use vti for example and then finally this third piece that would be the international stocks which you can use vxus and there you go you have 100 of a pie the reason i like m1 finance is because the entire premise of the product is a pie so you can easily go into your weights put in 64 vti uh whatever the 16 vx us and then 20 bond and there you go you have an 80 20 portfolio for example understood okay as always i end my videos with my thoughts these are my three thoughts based on the three fund portfolio okay so i think that less is more this is a great way for beginners to start because it's not intimidating and it has all the benefits that i mentioned in the video it's low maintenance it's easily rebalanced you're not checking a million different individual stocks and you know literally refreshing robinhood every two seconds if you want a free stock check out the robin hood link down below but i'm just proving a point that you know if you do these three funds you don't necessarily have to live in the markets you can kind of just set it and forget it and rebalance it maybe once every six months okay number two bond yields are historically low bond yields are very low right now so the traditional 60 40 portfolio 60 stocks 40 bonds that's called the risk parity portfolio that has done well since basically the 70s or 80s up until now however bond yields are incredibly low uh that's a conversation for macroeconomics which i'm not going to talk about in this video however the returns or having a portion of your portfolio and bonds may not provide the yields like it used to so that's something to be cognizant of bond yields are low so be aware of that and then finally this is a great start for anyone who wants to get started investing is inherently intimidating this is one of the easiest ways to actually create and structure a proper portfolio without yoloing your entire account on chicken attendees and tesla puts okay so this is a this is a great way to get started as always these videos take a lot of time and effort to make please share the video please hit the like button please subscribe and hit the bell if you haven't already share it on facebook and twitter check out the links down below if you want free training and if you want to get started thank you so much and have a prosperous day three fun portfolio this is my three fun portfolio here we go you ready it's going to be a little bit of nikola right here a little bit of tesla right here and then we're going to have microsoft naked puts let's go baby yolo portfolio

Channel: Marko - WhiteBoard Finance

Views: 152,257

Rating: 4.9481964 out of 5

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Id: 3cOL-ZV-afw

Length: 10min 4sec (604 seconds)

Published: Sun Sep 27 2020