The Simple Three Fund Portfolio at Vanguard

A super simple way to get started investing by walking you through how to create a Vanguard account and setup a three fund portfolio.

Written by Adam on 2017-08-03. Blog, Financial Independence, Investing. 21 comments. Find out how I make money.

Investing is easier than it looks. In this post, I’m going to give very simple steps you can take to start investing including where, how much and what to invest in. Investing in this way has returned around 7% a year over the last century using only a three fund portfolio.

This post is somewhat opinionated in the investing method mentioned here. It’s similar advice to what you’d read in books like The Bogleheads’ Guide to Investing, or other diversification strategies, but the specific actions are listed here to give a framework for those new to investing.

3-Fund Portfolio at Vanguard

Step 1: Save Up & Payoff Debt

The first step is to save up 3-6 months of your living expenses in a savings or checking account. In Which Investment Accounts Should I Use?, I mentioned this as the very first place to save money.

Order of Accounts

The next step is going to be to pay off your high-interest debt — namely credit cards. If you’re looking to invest and earn 7% a year, it doesn’t make sense to do it if you’re paying 15% in credit card interest. Take care of any debts above 7% first.

Step 2: Save Up to Start an Account

Build on that emergency fund with another $3,000 in savings. This is an important number for Vanguard since this is the point where you can open an account with most funds there.

Step 3: Open a Vanguard Account

Once you have this amount, head over to Vanguard and open account, linking your bank account. This process will take a few days, since Vanguard will make some deposits of a few cents into your account, and you’ll need to verify them. Once that’s done you’ll be able to invest within your new account!

Step 4: Make a “Buy” from your Vanguard Account

When your Vanguard account is created, and connected with your bank account, head over to the page to “Buy” Vanguard funds.

Vanguard buy page
The link to Buy Vanguard funds.

Then choose “Vanguard Funds” from the list of options.

Click this buy button
Buy and sell at Vanguard

Step 5: Choose Your Three Fund Portfolio

This is probably the hardest part. I’m going to make it easy and list out the 3 major funds that I focus on within Vanguard.

Vanguard Total Stock Market Index Fund Admiral or Investor Shares – $VTSAX

According to Marketwatch, this is the 2nd largest fund in the world. Investing in this fund means you’re actually investing in 3,606 different companies (at the time I’m writing this). This fund is focused on companies here in the US. The US has the longest history of growth in its stock market, and it makes sense for this to be your largest investment.

Vanguard Total International Stock Index Fund Admiral Shares – $VTIAX

There’s a lot of worlds out there beyond the US, and you don’t want all of your eggs in that basket. If the US goes into a recession, it’s important to hedge your bets by diversifying with other countries. This fund invests 44% in Europe, 30% in Asian/Pacific, 20% in Emerging Markets (Africa, India, others).

A Bond Fund

Which bond fund I recommend you go with will depend on what type of Vanguard account you have. If it’s a retirement account, in an IRA, a Roth IRA or a 401k, I’d recommend Vanguard Total Bond Market Index Fund Admiral Shares, $VBTLX. If this is in a brokerage account, it could help to read about my article on how to choose between accounts to better understand why I’d recommend Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares, $VWITX, instead. The idea is that this fund would result in fewer taxes for you every year — an important thing to keep in mind.

Step 6: Choose How Much

When it comes to how much of each, some people will recommend 0% in bonds, while others will recommend “your age %” in bonds. I tend to go somewhere in the middle and stick to around 20% bonds. That additional diversification means less variance in my portfolio and adds a bit more stability. Others wanting to maximize growth, and able to withstand large down periods (like 2008) could go 0% bonds, but that’s not me.

The amount between US Stock Market and International is up to you. I tend to prefer US Markets slightly, due to their record of growth. Here’s what I’d recommend the mix to be between these 3 stocks:

simple 3-fund allocation

Choose a percentage that works for you and click buy! In a few days, the transaction will be finalized and you’ll be able to view your investments from your Vanguard account.

Why Vanguard?

There are many places you can put your money – Fidelity, RobinHood, ScottTrade, E-Trade and dozens and dozens more. The reason I recommend Vanguard is because Vanguard is investor-owned. People who have investments in Vanguard fund the Vanguard business. This allows them to be autonomous and answer to their customers first rather than shareholders first.

Fidelity and all the others are public or privately held companies with an obligation to their shareholders. This difference means that they will never be able to beat Vanguard in fees since they will need to make a profit at the end of the day.

Mutual Funds vs ETFs

As a side note, Mutual Funds the way I go on Vanguard. From a fee standpoint, they’re both similar when you’re buying the fund from Vanguard. ETFs are actually slightly cheaper when you’re buying under $10,000 in any given fund (what Vanguard calls “Investor Shares”). Above $10,000 Vanguard has “Admiral Shares” for Mutual funds, which have the same fees as ETFs. ETFs are like stocks and can be traded at any time throughout the day. Mutual funds are priced once at the end of the day, and trades for them occur during off hours at the end of day price. Vanguard has a good write up the differences between mutual funds and ETFs.

Why Not A Target Retirement Fund?

Vanguard also offers these really great “Target Retirement Fund” Mutual Funds — for example Vanguard Target Retirement 2025 Fund, $VTTVX. If you look at what this is invested in, it’s almost exactly the same as the 3-fund portfolio! It’s actually a 4 fund one — with the 4th being international bonds. This fund will change its underlying assets over time with the idea that by 2025 it’ll be in “entering retirement” mode — highly shifted to bonds.

If you want to go this route, it’s actually not a bad idea. There are some downsides though. The Vanguard Fees will be slightly higher. The turnover within the fund will be higher (meaning that the underlying assets are being sold more often – resulting in more taxes for you). You can’t change your percentage of bonds vs international vs US stocks – you can only rely on them for that. The “target dates” get more and more conservative, while I’d likely maintain a 20% bond rate into retirement.

Take Action!

This post isn’t an ad for Vanguard, although it does look like it. As I mentioned, Vanguard is owned by its investors (those who own Vanguard Funds), so I’m not getting anything out of it, other than knowing that your money is in good hands.

If this post has been interesting, and you’d like to learn why I recommend Vanguard and these three specific funds, I’ve created a free 10-week Minimal Investor Course which helps teach the basics of investing — diversification, fees, asset allocation, taxes, and more. If you’re looking to become an informed investor, I’d encourage you to check it out.


Hi, I'm Adam! I help millennials invest to reach financial independence sooner than they ever thought possible. Want to see what you could do to reach FI sooner? You're in the right place!


Why not add to the conversation below? Your voice is welcome!

Big Vanguard and VTSAX fan here! We just rolled over Mr. Adventure Rich’s former employer 403(b) to a Vanguard IRA a few weeks ago and we are thrilled with the lower expense ratios!!!

VTSAX requires $10K initial investment.

Afterwards, if I want to buy more, do I have to buy in $10K increments or can I buy less than $10K?

Putting $10K for EACH contribution is a lot of money (at least for me).

Good question! No, there is no minimum. If you want to put in $1 you can do that, and there will be $0 in fees – basically like adding money to a savings account.

Vanguard has an “Investor” level version of this fund as well which only has a $3k minimum.

For each you need to invest that much to get started, but if the value falls under the start amount you won’t be kicked off Vanguard. In cases where there are 2 levels (3k and a 10k level), Vanguard might automatically change your funds to the lower level, which has slightly higher fees.

Does that help?

Thanks, Adam.

I searched for VTSAX from Vanguard website and it said “minimum investment of $10,000”, so I was curious. I haven’t open a Vanguard account yet.

What is the symbol for VTSAX-like investment that only require $3K?

Also, would you recommend this one over the VTSAX that require $10K?

Hey Chuck! If you head over to the Vanguard page on VTSAX you’ll see a line at the top that says “Also available as Investor shares and as an ETF.” If you click on the investor shares link it’ll take you to the page on VTSMX, which invests in exactly the same things as VTSAX.

The only differences between these 2 funds are:

The minimum amount needed for your first investment.
The fee to be in the fund.

I’d also recommend Admiral Shares if you have he money for them, but Investor are identical – and that difference in 0.09% is only going to be a about $9 difference (for $10,000).

Because of this, it’s great to start with the investor shares – chipping in more as you have it. Once you get to $10,000, Vanguard will give the option to change funds. What’s even better, changing funds won’t be a taxable event (like selling funds) – they’ll just charge you less on their side. This is possible because it’s a mutual fund and not an ETF.

Thanks Adam – appreciate you sharing this guide, learned a ton already, i rolled over my previous 401K to Wealthfront since and since it was less than 10K no fees are being assessed (yet) but i have no control over it. I will go ahead and roll it over to Vanguard ASAP and probably use the targeted retirement funds. Great writeup and thanks again. All the best.

Great resource you have here! Thank you.
Regarding Vanguard options, why VTSAX and not VTI ETF? Same question for other suggestions- why not use the ETF equivalent? I’ve read so much of your stuff I apologize if I missed your previous explanation.

Good question David! I wrote a bunch about this in the link below which dives into the differences between ETFs and mutual funds. I prefer mutual funds if the account is at Vanguard, or ETFs if the account isn’t. For instance, if you’re investing at Fidelity in a 401k, investing in a Vanguard ETF works great. For accounts I have full control over (like a brokerage or a Roth IRA), I choose mutual funds at Vanguard due to the ease of investing and some of the advantages mentioned in the article below. Hope it helps David!

Sri Goverdhan Sambhari

Sri Goverdhan Sambhari

December 28, 2021

This link is not working.

Fixed, thanks!

You said to save up 3k to start with Vanguard. In actuality with what you’ve outlined here it would be 9k due to each of these three funds having an initial investment minimum of 3k.

A better strategy to get started with a well diversified Vanguard portfolio would be to select one of their Lifestrategy funds, which cost 3k to open and maintain a fixed allocation.

Ohh yeah, that’s a good point. You’d need 3k to open the total market fund first – but you’d need 9k to start off diversified. For a Roth IRA/IRA starting with the lifestyle fund and then changing up when you had more is a great introduction – and people would get experience selling funds.

You need more if you’re going to have the allocation that Bogle talks about right? Because if you have 3k in each you’re allocation is 33+% of each. How much money do you really need to get that good allocation he talks about?

Brij singh

Brij singh

July 29, 2018

Very nice concept

Nanya doz

Nanya doz

August 25, 2018

Great article!

Dawn S G

Dawn S G

October 24, 2019

Great stuff, wish I had all this sooner… Neer too late I guess; I am ready to implement your plans; I need to consolidate my numerous accounts; Husband and I have maxed out 401K’s through our work with Fidelity; etrade for employee stocks; td ameritrade; savings accounts, etc… For consolidation purposes – do you think Fidelity funds are as competitive as vanguard? they have a chart that they claim their funds have lower fees than Vanguard (FSKAX versus VTSAX) ; I am trying to simplify.. Also I am confused on the tax ; We are in a very high tax bracket so what do you recommend in regard to out work 401K funds versus our funds we will place after tax to avoid paying all the tax on dividends… thnx… Dawn S G

Hey Dawn! Sounds like you have it dow! For that fund comparison ($FSKAX and $VTSAX) they are equivalent – so investing in one is just as good as investing in the other. If you’re already using Fidelity, you can use the same approach I talk about with Vanguard funds using that fund for sure. I think it’s always better to have fewer accounts too, so if you can do the same thing with one fewer account, that’s a win-win!

There are some Fidelity funds that I wouldn’t invest in myself, just like there are a bunch of Vanguard funds I wouldn’t invest in. If you stick to the absolute basics in a diversified portfolio you can’t go wrong though. It’s when I’ve started picking mutual funds in the niches it’s where things go wrong (energy funds, specific sectors, etc). I’ve found it better to just go total market and not worry about it.

When it comes to taxes, you’re asking the right questions – where should funds go to be the most tax-efficient. In my free Minimal Investor Course, I go over how to prioritize which funds should go where. The tl;dr is: the more unqualified dividends a fund has, the most reason there is to hold that in your 401k/IRA/Roth IRA.

My 401k is 100% bonds, which is the most tax-effective way to organize my accounts. There’s a really good article on the Bogleheads Wiki about this too that’s worth reading.

Hello You said above that “My 401k is 100% bonds, which is the most tax-effective way to organize my accounts” - I thought that is the worst place to keep them as these accounts are for tax free growth of your portfolio until you are ready to withdraw and should be mostly equities. What did I misunderstand? Thanks

What do you think about QQQ? Is that something you’d add or substitute?

I like QQQ, but more as an additional one if you want to tilt your portfolio towards more tech stocks. QQQ is a Nasdaq index, and the Nasdaq leans towards tech. It’s performed well lately, and I don’t see tech going away anytime soon.

At the same time, some of the market sectors that perform the best during a downturn are consumer staples and other industries not heavily weighted in QQQ. That’d lead me to think it’s not a replacement for VTSAX.

Hi. Great post! Just wanted to get an update for 2023. Would you still recommend those same 3 funds for a 3 fund portfolio?

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