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Three broad funds cover a lot.
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The three-fund portfolio and rebalancing
US stocks, international stocks and bonds — a simple mix — plus a rule for keeping it on target.
In this lesson you will
- Describe the three-fund portfolio
- Choose a stock and bond split based on timeline
- Rebalance with a calendar or threshold rule
A three-fund portfolio is a simple, widely discussed approach: a total US stock fund, a total international stock fund and a total bond fund. Together they cover thousands of stocks and bonds.
Choosing the mix
The split between stocks and bonds is the biggest decision. More stocks means more growth potential and bigger swings; more bonds means steadier value and lower expected growth. Your timeline and comfort with losses decide it.
Rebalancing
Over time, the parts drift as they grow at different rates. Rebalancing moves the mix back to target — selling some of what grew and buying what lagged.
Two common rules
- Calendar: rebalance once a year on a set date.
- Threshold: rebalance when any part drifts more than a set amount, such as 5 percentage points.
Rebalance tax-wisely
Inside retirement accounts, rebalancing does not usually trigger tax. In taxable accounts, directing new contributions to the lagging part can rebalance without selling. Education only — GetGuac does not recommend specific funds or investments.
By the GetGuac team · Editorial policy
Three ideas to keep
The stock/bond split matters most
More than which fund.
Rebalancing is buy low, sell high by rule
Without predicting anything.
Do it in 4 steps
Write your target mix
For example 60/20/20.
Pick a rebalancing rule
Calendar or threshold.
Use new money first
Buy what lags.
Review the mix as goals change
Not with headlines.
Rebalancing after a strong year for US stocks
Illustrative target 60% US / 20% international / 20% bonds.
| Fund | Target | After drift | Move to rebalance |
|---|---|---|---|
| US stocks | $60,000 (60%) | $70,000 (63.6%) | Sell $4,000 |
| International | $20,000 (20%) | $20,000 (18.2%) | Buy $2,000 |
| Bonds | $20,000 (20%) | $20,000 (18.2%) | Buy $2,000 |
| Total | $100,000 | $110,000 |
Targets on $110,000 are $66,000 / $22,000 / $22,000 — the moves restore them.
Where this usually goes wrong
- Never rebalancing
- Rebalancing constantly
- Changing the mix after every headline
Write your target mix and the date you will check it each year.
Tools and guides for this lesson
Quick quiz
1. The three funds are…
2. Rebalancing means…
3. In a taxable account, a tax-friendly way to rebalance is…
0 of 3 answered
Puzzle
Target 70% stocks / 30% bonds. You have $77,000 stocks and $23,000 bonds. How much should move to bonds?
Show the answer
$7,000
Total $100,000. Target bonds $30,000. $30,000 − $23,000 = $7,000.