You Only Need 3 ETFs for a Diversified StockBond Investment Portfolio

Investors seeking to build a diversified investment portfolio should start with a good mix of equities and fixed-income assets. With over 1,900 exchange traded funds on the U.S. markets, picking the right one may be daunting, but investors can still keep things simple.

While investors may enjoy higher returns with an all-equity portfolio, a proper mix of stocks and bonds helps diminish overall risks, writes Mark Hulbert for MarketWatch.

Since 1926, a 60/40 stock and intermediate-term Treasury bond portfolio would have produced an 8.6% annualized return, or 1.4 percentage points lower than the 10% annualized return of an all-stock portfolio. Over the past 20 years, the all-equity portfolio beat the 60/40 portfolio by only 0.7 percentage points.

However, investors typically can’t stomach the volatility of stocks in an all-stock portfolio during a bear market, often dumping positions as losses increase.

“The people who can truly stomach the volatility of a 100% stock portfolio are either catatonic or dead,” Claude Erb, a former fixed-income and commodities manager at mutual-fund firm TCW Group, told MarketWatch.


The 60/40 mix also outperformed during periods of rising rates. From 1966 to 1981 when yields on intermediate-term Treasuries almost tripled from 4.7% to 13.6%, a 60/40 portfolio beat the all-equity portfolio by 0.3 percentage points per year on an annualized basis.