PORTFOLIO COMPARISON / ONE VARIABLE

Three-Fund vs 60/40 Portfolio Backtest

Isolate the historical effect of adding international equities to a stock and bond portfolio.

Bogleheads-style allocationPopular index-investing frameworkUS stocks, international stocks and bondsHistorical result available

HISTORICAL BACKTEST RESULT

60% VTI / 40% BND vs 42% VTI / 18% VXUS / 40% BND

60% VTI / 40% BND 42% VTI / 18% VXUS / 40% BND
2020-06-02 → 2026-07-31 · 1541 common sessions
60% VTI / 40% BND$15,9787.9% annualized · -22.8% max drawdown
42% VTI / 18% VXUS / 40% BND$15,1266.9% annualized · -23.7% max drawdown

Historical calculation from cached Marketstack EOD data. Annual rebalancing, $10,000 initial value, nominal USD before fees and taxes. The disclosed portfolio definitions—not an AI model—produce the result.

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WHAT TO COMPARE

Read the trade-off as a system.

  1. 01Return difference
  2. 02Drawdown difference
  3. 03Tracking error
  4. 04Start-date sensitivity

WHEN TO LOOK

Locate where the difference appeared.

US-led marketsInternational-led marketsCurrency cyclesGlobal crises

A useful comparison shows whether an advantage was broad or created by one unusually favorable period. Review the portfolio backtest methodology to understand how the same rules are applied across a shared data window.

OBSERVED RESULT / REAL MARKET DATA

What the comparison actually produced.

Adding an 18% international-equity sleeve lowered the ending value by $1,919 and did not improve maximum drawdown in this US-led decade. That is evidence of period dependence, not proof that international diversification is structurally ineffective.

WINDOWAug 2016–Jul 2026
CAPITAL$10,000 initial investment
CALCULATIONUS 60/40 uses VTI and BND. The three-fund variant keeps 40% bonds and divides equities into 42% VTI and 18% VXUS; annual rebalancing.
PortfolioEnding valueAnnualized returnMaximum drawdown
60% VTI / 40% BND$24,6429.44%−21.76%
42% VTI / 18% VXUS / 40% BND$22,7238.56%−22.10%

STRATEGY CONTEXT

What this portfolio strategy means.

A short definition, the reason investors return to it, and the historical context behind the name. It is context for a backtest—not an investment recommendation.

What it is

A Three-Fund Portfolio uses one broad US stock fund, one broad international stock fund, and one broad bond fund. This comparison makes that structure explicit and measures it against a 60/40 reference using the same dates, starting value, and rebalancing rule. The difference is primarily the treatment of international equity exposure, not a stock-picking contest.

Why investors use it

The approach appeals to investors who prefer broad diversification, low implementation complexity, and a portfolio they can explain in a sentence. Comparing it with a domestic 60/40 mix helps surface the practical trade-off: global diversification can change performance leadership and currency exposure, while also changing the periods in which the portfolio lags its home market.

Historical context

The three-fund shorthand grew out of index-fund communities and the broader Boglehead approach to keeping costs and moving parts low. It became more accessible as low-cost total-market and international ETFs expanded. The name describes a building block, not a fixed allocation; equity weight, home-country bias, bond type, and rebalancing schedule still need to be specified.