A simple starter portfolio

You don't need 20 funds. One to three well-chosen, low-cost funds can build a diversified portfolio.

Option 1: One fund that does it all

A target-date fund holds a full mix of stock and bond funds and gradually becomes more conservative as its target year approaches. You pick the fund with the year closest to when you expect to retire, and it handles the rest.

A broad “all-in-one” or total world stock fund is another single-fund option for long horizons. Check the expense ratio: index-based versions are often much cheaper than actively managed ones.

Option 2: The three-fund portfolio

A popular do-it-yourself approach uses three broad index funds. You choose the split, and it's easy to see exactly what you own.

One illustrative split for a long horizon, not a recommendation
Fund	What it holds	Example share
Total US stock market index	Thousands of US companies of all sizes	60%
Total international stock index	Companies in developed and emerging markets outside the US	30%
Total bond market index	Many government and corporate bonds	10%

How to check a fund before you buy

What does it track? Look for a broad index, not a narrow theme.
What does it cost? Compare the expense ratio with similar funds.
How many holdings? Hundreds or thousands means built-in diversification.
Does it overlap? Two funds holding the same companies add little.

Key takeaways

A single target-date fund can be a complete portfolio.
A three-fund portfolio covers US stocks, international stocks and bonds.
Check what a fund tracks, what it costs, and whether it overlaps with what you own.

Key terms

Asset allocation: How your money is split between types of investments, such as stocks, bonds and cash.
Index fund: A fund that tracks a market index, such as the S&P 500, instead of trying to pick winners.
Portfolio: All of your investments taken together.
Target-date fund: A single fund holding a mix of stocks and bonds that becomes more conservative as its target year approaches.

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