Three fund portfolio 2019 update

The Taylor Larimore three-fund portfolio, is a portfolio design consisting of three “total” market index funds, covering the US stock market, the international stock market, and the US taxable investment grade bond market. Investors were able to implement this portfolio beginning in 1997, when Vanguard introduced a total international index fund. The firm had introduced a total US stock market index in 1992, and a total US bond market index in 1987.

The 2019 returns for the portfolios constituent funds (admiral class):

  • Vanguard Total Stock Market Index Fund: 30.80%
  • Vanguard Total International Stock Index Fund: 21.51%
  • Vanguard Total Bond Market Index Fund: 8.71%

Below are four portfolios with allocations modeled upon Vanguard Lifestrategy funds (click images to enlarge). The portfolios allocate 30% of the stock allocation to international stocks.

Returns

The table below provides 2019 returns for these portfolios. Note that a different weighting of international stocks would result in differing returns.

Year80/2060/4040/6020/80
201924.15%20.29%16.43%12.57%

Historical returns

The following tables give return data for three-fund portfolios assuming investment in Vanguard index funds. Keep in mind that past returns are no guarantee of future returns, but the history reveals how each portfolio allocation has performed over both the 2000 – 2002 and 2008 bear markets and ensuing recoveries.

Now that Vanguard has eliminated investor shares for a large number of index funds, the returns data from 2018 forward reflects returns for admiral shares. Note that returns data before 2018 reflect investor share performance and that investors using lower cost admiral share portfolios prior to 2018 can add approximately +0.10% annual compound return for each allocation.

Three-fund portfolio returns

Year80/2060/4040/6020/80
201924.15%20.29%16.43%12.57%
2018-6.36%-4.78%-3.20%-1.61%
201719.05%15.15%11.25%7.35%
20168.63%7.10%5.64%4.03%
2015-0.83%-0.54%-0.26%0.02%
20147.10%6.76%6.43%6.09%
201321.83%15.81%9.79%3.76%
201214.26%11.71%9.16%6.60%
2011-1.44%0.81%3.06%5.31%
201013.52%11.75%9.97%8.20%
200926.07%21.04%16.00%10.97%
2008-30.32%-21.47%-12.63%-3.79%
20078.18%7.87%7.55%7.24%
200615.93%13.02%10.10%7.19%
20057.57%6.27%4.98%3.69%
200412.86%10.71%8.55%6.40%
200328.03%22.02%16.00%9.99%
2002-13.70%-8.21%-2.72%2.77%
2001-9.29%-4.86%-0.43%4.00%
2000-7.39%-2.69%2.00%6.70%
199920.36%15.08%9.80%4.52%
199818.82%16.26%13.70%11.14%
199719.06%16.65%14.25%11.64%

Compound returns

The tables below give 3-year, 5-year, 10-year, 15-year, and 20-year compound returns and volatility statistics for each three-fund portfolio allocation.

80/20 allocation

3-year5-year10-year15-year20-year
CAGR11.44%8.32%9.54%7.47%5.80%
STDev16.35%12.88%10.43%14.33%15.02%

60/40 allocation

3-year5-year10-year15-year20-year
CAGR9.67%7.04%8.13%6.82%5.80%
STDev13.24%10.46%8.03%10.83%11.10%

40/60 allocation

3-year5-year10-year15-year20-year
CAGR7.83%5.71%6.68%6.02%5.63%
STDev10.17%8.07%5.80%7.44%7.31%

20/80 allocation

3-year5-year10-year15-year20-year
CAGR5.94%4.35%5.16%5.09%5.30%
STDev7.17%5.72%4.05%4.14%4.01%

Sharpe ratio

Three fund portfolios: Sharpe ratios

Sharpe ratio80/2070/3060/4040/6020/80
3yr0.650.650.650.640.63
5yr0.630.630.630.630.64
10yr0.910.950.991.101.18
15yr0.490.520.550.640.82
20yr0.330.360.400.530.84

Calculated returns data uses this three-fund portfolio google drive spreadsheet. The spreadsheet contains returns data for an assortment of international stock allocations. Note that over time Taylor Larimore has opted for 20% of equity in international stock in his recommended three-fund portfolio. The 2019 returns for this allocation can be found in the spreadsheet.

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