Three fund portfolios for taxable accounts – 2018 update

The Taylor Larimore three-fund portfolio is a portfolio design consisting of three “total” market index funds covering the US stock market, the international stock market, and the US taxable investment grade bond market. However, investors with large taxable accounts and falling in high tax brackets may find that tax-exempt bonds provide higher after-tax returns and would prefer to use an intermediate-term tax exempt bond fund for the portfolio bond allocation in the taxable account.

Investors were able to implement this portfolio beginning in 1997, when Vanguard introduced a total international index fund. The firm had introduced a total US stock market index fund in 1992, and an intermediate US tax-exempt bond fund in 1977. (Tax-exempt bond index funds have limited performance histories, so we are using Vanguard’s low-cost active fund in this analysis.)

The 2018 returns for the portfolio’s constituent Vanguard funds:

  • Vanguard Total Stock Market Index Fund: -5.17%
  • Vanguard Total International Stock Index Fund: -14.43%
  • Vanguard Intermediate Tax-Exempt Bond Fund: 1.25%

Below are four portfolios with allocations devoting 30% of the stock allocation to international stocks (click images to enlarge).


Barry Barnitz, an administrator of the John C. Bogle Center for Financial Literacy site.

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