VOO vs 3 fund portfolio (2024)

I am looking at the 3 fund portfolio, Total Market, Total International and Total Bond, and comparing it to S&P 500 index. If I have a 10 year or more horizon, why wouldn’t I just put everything in VOO vanguard S&P 500 index? It seems over 10 years, I would likely beat the three fund portfolio handily without ever having to rebalance or even look at it. What am I missing?

Part 2: My 12 year old has $15000 and I am thinking of the same scenario…just park it in an S&P 500 index fund and forget it.

I am new to all of this and am reading Bogleheads guide to investing. Thanks for any insights.

Ccham36 wrote: ↑Fri Dec 22, 2023 10:26 amI am looking at the 3 fund portfolio, Total Market, Total International and Total Bond, and comparing it to S&P 500 index. If I have a 10 year or more horizon, why wouldn’t I just put everything in VOO vanguard S&P 500 index? It seems over 10 years, I would likely beat the three fund portfolio handily without ever having to rebalance or even look at it. What am I missing?

Part 2: My 12 year old has $15000 and I am thinking of the same scenario…just park it in an S&P 500 index fund and forget it.

See Also

The 3 Fund PortfolioBasic Asset Allocation Models For Your PortfolioVanguard vs BlackRock | UnbiasedWhat is 90% rule in Forex?

I am new to all of this and am reading Bogleheads guide to investing. Thanks for any insights.

Welcome to the forum.

The rationale for using the 3-fund portfolio is diversification.

Just because the S&P 500 has out-performed a 3-fund balanced portfolio (recently) doesn't mean that will always be true. There have been times in the last 50 years where International stocks (or US Bonds) performed better than US stocks. By holding all 3 major asset classes (US stock / International stock / Bonds), you're better prepared for any market environment.

This is especially true for a 12 year old, who might be an investor for another 80 years. Do you really want to bet that US stocks will be better than every other investment over that long a time span?

Regards,

Ccham36 wrote: ↑Fri Dec 22, 2023 10:26 am It seems over 10 years, I would likely beat the three fund portfolio handily without ever having to rebalance or even look at it. What am I missing?

It could. it would have over the past 10 years.

https://www.portfoliovisualizer.com/bac ... mCUGupzfuw

It would NOT have from 2000-2009.

https://www.portfoliovisualizer.com/bac ... 4k4o3i1eVg

So it depends which 10 years we get each time and nobody knows.

If this is money for a 15 year old to use when they are 65, can you honestly say you can predict S&P500 continues to beat international through 2073?

Ccham36 wrote: ↑Fri Dec 22, 2023 10:26 amI am looking at the 3 fund portfolio, Total Market, Total International and Total Bond, and comparing it to S&P 500 index. If I have a 10 year or more horizon, why wouldn’t I just put everything in VOO vanguard S&P 500 index? It seems over 10 years, I would likely beat the three fund portfolio handily without ever having to rebalance or even look at it. What am I missing?

I think it can be perfectly reasonable to hold only the S&P 500 but the reason is NOT because you would likely beat the three fund. The reason is that your plan would meet your objectives. I doubt your real objective is to beat some hypothetical alternate portfolio.

The next step for you would presumably be to specify what you want and then see if the likely results of owning only VOO forever, or only for ten years if that is all you are thinking about, are a good fit for that or possibly that some other choice is a better fit.

It is true that if you were to force me to decide which to hold for the most wealth acquired in the next ten years I would invest in VOO rather than in any other* version of the three fund concept, though I would not want anything really important riding on the bet.

*Mathematically VOO alone is a three fund portfolio with international and fixed income allocation set to zero and equating VOO and total stock for all practical purposes.

Welcome to the forum.

100% stocks makes sense for some, but not so much for others. One way to look at this is to ask:
1. Do you need the (likely but not guaranteed) greater returns from 100% stock?
2. How bad would your situation be if your portfolio lost (say) 40-50% of its value a year before withdrawal time?
3. Can you emotionally handle the expected roller coaster ride of 100% stocks (eg, sleep well when (2) happens, not panic and sell like many people here have done in 2008, 2020, and 2022)?

Conventional wisdom would say 100% stock for money needed in 10 years is risky for the not-very-wealthy individual (if you will have way more money than you need, then it might be okay). For a teenager who won’t need the money for several decades, and for whom it will be a trivial part of their future portfolio, it’s fine.

Ccham36 wrote: ↑Fri Dec 22, 2023 10:26 amI am looking at the 3 fund portfolio, Total Market, Total International and Total Bond, and comparing it to S&P 500 index. If I have a 10 year or more horizon, why wouldn’t I just put everything in VOO vanguard S&P 500 index? It seems over 10 years, I would likely beat the three fund portfolio handily without ever having to rebalance or even look at it. What am I missing?

Part 2: My 12 year old has $15000 and I am thinking of the same scenario…just park it in an S&P 500 index fund and forget it.

I am new to all of this and am reading Bogleheads guide to investing. Thanks for any insights.

Welcome to the forum. I'd recommend finishing the book The Bogleheads Guide to Investing and then see if you still have this question.