Choosing funds.
The three-fund portfolio in plain English.

Fund 1: Total US Stock Market

Owns roughly all publicly traded US companies, weighted by market cap. The S&P 500 covers ~80% of the US market and is an acceptable simplification. Total Stock Market goes further and includes mid- and small-cap.

• Vanguard: VTI (ETF) or VTSAX (mutual fund). Expense ratio 0.03%.
• Fidelity: FZROX (zero expense ratio mutual fund) or FSKAX (0.015% mutual fund) or ITOT (iShares ETF, 0.03%).
• Schwab: SCHB (ETF) or SWTSX (mutual fund). Expense ratio 0.03%.

All four are fungible for practical purposes. Pick the one your brokerage supports natively to avoid friction.

Fund 2: Total International Stock Market

Owns developed-market and emerging-market stocks outside the US. Lower correlation with US stocks reduces portfolio volatility without sacrificing expected return.

• Vanguard: VXUS (ETF) or VTIAX (mutual fund). 0.07%.
• Fidelity: FZILX (zero ER) or FTIHX (0.06%) or IXUS (iShares, 0.07%).
• Schwab: SCHF (developed only) or SCHE (emerging only). For total international, IXUS or FTIHX at 0.06 to 0.07%.

Fund 3: Total Bond Market

Owns a broad mix of investment-grade US bonds: Treasuries, agency mortgage-backed securities, and high-quality corporate bonds. Lower expected return than equities but lower volatility, providing dry powder for rebalancing during equity drawdowns.

• Vanguard: BND (ETF) or VBTLX (mutual fund). 0.03%.
• Fidelity: FXNAX (0.025%) or FBND (Fidelity ETF, 0.05%) or AGG (iShares, 0.03%).
• Schwab: SCHZ (ETF, 0.03%).

Bond fund duration matters. BND has duration around 6 years; long-bond funds (TLT, EDV) have duration of 18+. The 2022 lesson: when rates rise, longer duration falls more. Detail at Bond Basics.

How to split between the three

US vs international

The US is approximately 60% of global market cap. A market-weighted portfolio holds roughly 60% US, 40% international. Most US-domiciled investors hold meaningfully more US than market-weight (a "home country bias"); detail at Index Funds.

Reasonable defaults: 100% US (full home-country bias, simplest), 80/20 US/international, 70/30, or full market-weight 60/40. The internal debate is real; any of these is defensible.

Bond allocation by age

The classic rule: bond percentage = age minus 20. A 30-year-old: 10% bonds. A 50-year-old: 30%. A 70-year-old: 50%. The rule is rough but directionally right; the bond allocation should grow as the time horizon shrinks.

Modifications: longer time horizon (FIRE retiring at 50) suggests less bonds; high job security and stable income suggests less bonds; near retirement and want to preserve principal suggests more.

Why expense ratios matter

A 1% annual expense ratio on a 7% nominal return cuts the compound growth rate to 6%. Over 40 years, that 1 percentage point reduces the final portfolio by roughly 28%. The fee compounds against you year after year. Detail and the calculator at Expense Ratio Impact.

Index funds at the major brokerages run 0.00% to 0.05%. Active mutual funds typically run 0.50% to 1.50%. The difference is structural: passive does not require an expensive research team.

What this changes for tomorrow

• Audit your current portfolio for funds with expense ratios above 0.20%. Switch to the index equivalent at your brokerage.
• Decide your three-fund split (US/international/bond) and write it down. Without a written allocation, drift happens.
• Rebalance annually if any allocation has drifted more than 5 percentage points from target.

Continue the sequence