Three-Fund Portfolio: backtest, returns and drawdowns
US stocks, international stocks and bonds in three broad index funds. This version holds 40/20/40.
Data updated October 2026
Created by: Bogleheads (Taylor Larimore)
Allocation
| Asset class | ETF used in the backtest | Weight |
|---|---|---|
| US total stock market | VTI | 40% |
| International stocks | VXUS | 20% |
| US aggregate bonds | BND | 40% |
From June 2020 to October 2026 the Three-Fund Portfolio returned 9.1% a year on average, with annual volatility of 10.4%. Its deepest fall was 22.3%, from November 2021 to October 2022, recovered in about 29 months.
Its best year was 2025 (+16.1%) and its worst 2022 (−16.3%).
Over the same period 100% US stocks returned 16.8% a year with a maximum fall of 25.4%.
Key figures
- Annual return (CAGR)
- +9.1%
- Annual volatility
- 10.4%
- Maximum drawdown
- −22.3%
- Recovery time
- 29 months
- Sharpe
- 0.62
- Sortino
- 0.89
- Worst year
- 2022: −16.3%
- Positive years
- 4/5
Growth of $10,000
Drawdowns
Returns by calendar year
| Year | Three-Fund Portfolio | 60/40 Portfolio | 100% Stocks |
|---|---|---|---|
| 2026(partial) | +7.6% | +8.0% | +14.7% |
| 2025 | +16.1% | +13.1% | +17.1% |
| 2024 | +11.1% | +14.8% | +23.8% |
| 2023 | +15.8% | +17.9% | +26.1% |
| 2022 | −16.3% | −17.0% | −19.5% |
| 2021 | +11.3% | +14.6% | +25.7% |
| 2020(partial) | +16.3% | +16.5% | +26.4% |
How it works
Maximum diversification at minimum cost and complexity; the investor chooses the stock/bond split to match their risk tolerance.
Backtest with total-return ETF prices (dividends reinvested), rebalanced to target weights on the first trading day of each year. No fees, taxes or currency effects; first and last years are partial. Past results do not predict future returns.
Questions
What is the Three-Fund Portfolio?
US stocks, international stocks and bonds in three broad index funds. This version holds 40/20/40. Allocation: 40% us total stock market, 20% international stocks, 40% us aggregate bonds. Created by: Bogleheads (Taylor Larimore).
What is the Three-Fund Portfolio return?
In the backtest from June 2020 to October 2026 it returned 9.1% a year on average, with a maximum drawdown of 22.3%. US dollars, before fees and taxes.
How often should it be rebalanced?
The backtest rebalances once a year back to the target weights. Rebalancing more often changes little and adds costs; some investors rebalance only when a weight drifts beyond a threshold.
What was the worst drawdown of the Three-Fund Portfolio?
22.3%, from November 2021 to October 2022; it took about 29 months to get back to the previous high.
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- Versione italiana
Source: MarketStack end-of-day prices. Historical and educational content: not a forecast and not investment advice. MEDGE Capital does not recommend buying or selling any instrument. Risk disclaimer.