The Bogleheads' Guide to the Three-Fund Portfolio

Preface

The History of the Bogleheads’ Three-Fund Portfolio

I often am asked, “What’s so special about the Three-Fund Portfolio?”

The answer is simple: By owning just three low-cost total market index funds (Total U.S. Equity, Total U.S. Bond, and Total International Equity), investors have historically outperformed the vast majority of mutual funds over time.

I’ll start at the beginning and will attempt to share with you some of the lessons I learned the hard way, over many, many years. Yes, I, a nonagenarian, have seen just about everything the world has to share.

The Roaring Twenties were marked by great exuberance in the stock market. The Dow Industrials climbed from a low of 66 in 1920 to a high of 381 in 1929. Then came the worst Bear Market in U.S. history. The Dow plunged 89% to a low of 41 in 1932. (An 89% decline requires a 909% gain to recover.) A Bear Market in stocks can be a terrifying experience if your financial future is at stake.

I was born in 1924, the year the first open-end mutual fund was established (Massachusetts Investment Trust). The closest equivalents were called “investment trusts.” In 1929, my grandfather, Christopher Coombs, was one of three principals at the top of the world’s largest investment trust—United Founders Corporation. Investment trusts, later called “mutual funds,” must be in my blood.

The year 1929 was the beginning of a long and terrible depression in the United States. Unemployment rose from 3% to 25% of the nation’s workforce. ...