Two-fund portfolio

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A two-fund portfolio is often used by investors seeking a simple asset allocation portfolio. The portfolio consists of one equity index fund and one fixed income fund. The fund selections can vary depending on asset class (global equity or domestic equity; bond type), and asset type mutual fund, exchange-traded fund, collective investment trust

Global two-fund portfolios

Rick Ferri has proposed a two-fund portfolio consisting of the following asset classes:

  • A global stock market index fund/ETF
  • A US intermediate term bond index fund/ETF

Ferri suggests a US total market bond index fund/ETF for the fixed income selection. However, investors can substitute a global bond index fund/ETF, a US intermediate-term bond index fund/ETF, a US intermediate-term treasury bond index fund/ETF, or a US municipal bond index fund/ETF for the fixed income allocation. Investors may also find that employer-provided retirement plans will use collective investment trusts as investment vehicles.

The Ferri two-fund portfolio can be adjusted to reflect any stock/bond allocation. The charts below reflect different asset allocations.

Global two-fund portfolio allocations

US only two-fund portfolios

Both John Bogle and Warren Buffett have suggested portfolios for investors who want to invest in US domestic stocks and bonds.

John Bogle two-fund portfolio

John Bogle has often suggested that an investor can invest in a total US stock market index fund and a total US bond index fund.[notes 1] He has also suggested that an intermediate-term bond index fund, or a low-cost intermediate municipal bond fund can be used for fixed income allocations. The portfolio can be allocated in various stock/bond allocations, as the charts below indicate.

John Bogle two-fund portfolio allocations


Warren Buffett two-fund portfolio

Notes

  1. Jack Bogle in The Little Book Of Common Sense Investing, CH.18 wrote: DEEP DOWN, I REMAIN absolutely confident that the vast majority of American families will be well served by owning their equity holdings in an all-U.S. stock-market index portfolio and holding their bonds in an all-U.S.bond-market index portfolio. (Investors in high tax brackets, however, would hold a very low-cost quasi-index portfolio of high-grade intermediate-term municipal bonds.)...

References