Three-fund portfolio (UCITS version): the simplest “set-and-hold” ETF setup for Europe
A three-fund portfolio is a low-maintenance way to invest long-term using broad UCITS ETFs: global stocks + emerging stocks + high-quality bonds. You get diversification, control, and a clean rebalancing routine.
Educational content only. Not personalized investment advice.
TL;DR
- Three funds: Developed-world stocks + Emerging-market stocks + Bonds (preferably EUR-hedged).
- Pick your stock/bond split first (e.g., 80/20, 60/40). Everything else is detail.
- Use UCITS ETFs (Europe-friendly). Keep it broad, cheap, and liquid.
- Rebalance 1–2×/year (or with contribution “band” rules) and ignore noise.
- Don’t overcomplicate: more ETFs usually means more decisions, not better results.
The 10-minute setup (what to decide)
- Choose your stock/bond split (risk level): 90/10, 80/20, 60/40, etc.
- Choose the equity structure:
- Classic three-fund: Developed-world + Emerging + Bonds.
- Simpler alternative: One global equity ETF (All-World) + Bonds (two-fund portfolio).
- Choose bond type: high-quality aggregate bonds, preferably EUR-hedged for EUR-based investors.
- Choose accumulating vs distributing (more on that below).
- Set a rebalancing rule you can follow without thinking.
What a “three-fund portfolio” means (UCITS edition)
The original idea is simple: own the whole market, keep costs low, and avoid constant tinkering. For most Europeans using UCITS ETFs, a practical three-fund version is:
FUND #1
Developed-world stocks
Broad developed-market equity exposure (e.g., “World / Developed” index). This is the core growth engine.
FUND #2
Emerging-market stocks
Complements developed markets to get closer to “global market cap.” Optional if you use an All-World equity ETF instead.
FUND #3
Bonds (prefer EUR-hedged)
Stabilizer and dry powder. For EUR-based investors, EUR-hedged bond ETFs usually make the most sense to reduce currency swings in the “stability” sleeve.
If you want maximum simplicity, use one global equity ETF (All-World) + one bond ETF. That’s not “wrong.” It’s often better than a complex portfolio you don’t maintain.
Pick allocations that you can stick with
Your long-run result is driven more by staying invested than by finding the “perfect” ETF mix. Use a simple rule: higher stocks = higher expected volatility (and potential return).
Aggressive
90/10 or 80/20 (stocks/bonds)
- Best for long horizons
- Expect deep drawdowns
- Requires discipline
Balanced
70/30 or 60/40
- Smoother ride
- Still growth-oriented
- Easier to hold through crashes
Conservative
50/50 or lower stocks
- Lower volatility
- Lower expected return
- Often used near/into retirement
Then split the stock portion between Developed and Emerging. A common, simple approach is 80–90% developed and 10–20% emerging.
How to choose the actual UCITS ETFs (without chasing “best” tickers)
Don’t optimize for tiny differences. Optimize for robustness:
Equity ETFs
- Broad index (World/Developed, Emerging, or All-World).
- Low total costs (TER is a start, tracking difference is the reality).
- High liquidity and tight spreads (use limit orders).
- Physical replication if you want simplicity of structure.
Read next: Tracking difference vs TER and ETF liquidity & spreads.
Bond ETFs
- High-quality aggregate bonds (government + investment-grade).
- Consider EUR-hedged if your spending currency is EUR.
- Avoid reaching for yield (junk bonds turn “stability” into “equity-lite”).
Bond ETF guide is queued in your roadmap. Until then: keep duration moderate and keep the bond sleeve boring.
Accumulating vs distributing (the practical view)
For many investors, accumulating ETFs are simpler because dividends automatically reinvest. Distributing ETFs can be useful if you need cashflow or you prefer manual reinvestment. Taxes vary by country, so keep it mechanical:
- If you reinvest anyway, accumulating often reduces friction.
- If you need income, distributing can match your spending plan.
- Don’t pick based on “dividend yield.” That’s a common trap.
Educational content only. Not personalized investment or tax advice.
Rebalancing rules that actually work
Rebalancing is not about precision. It’s about preventing your portfolio from drifting into a risk level you didn’t choose.
Rule A: Calendar rebalance
Rebalance once per year (or twice) on a fixed date.
- Simple and consistent
- Low time cost
- Good default
Read: Rebalancing (no stress)
Rule B: Contribution rebalance
Use new contributions to buy the underweight fund.
- Often avoids selling
- Works best with regular investing
- Pairs well with “bands”
If you invest monthly, see: Best broker for recurring investing (Europe)
A clean “band” rule: rebalance only if an asset class drifts by ±5 percentage points from target (e.g., 80/20 becomes 85/15 or 75/25). Otherwise do nothing.
Costs that matter more than you think
A three-fund portfolio is designed to be boring. Your edge comes from low friction: fees, FX costs, spreads, and execution mistakes.
ETF costs
TER is visible, but tracking difference is what you actually experience. Liquidity and spreads are real costs too.
Fees really matter · Tracking difference vs TER · Liquidity & spreads · World ETFs
Broker + FX costs
If your broker has expensive FX conversion or hidden “commission-free” friction, it compounds.
Cheapest FX broker (Europe) · Best broker for long-term ETF investing (non-US)
STUDY
Rebalance bands vs annual rebalance
Two rules, same goal: keep risk on-target. This study shows what actually changes (drift control + trade frequency) and what usually doesn’t (long-run return).
Default rule: annual is “good enough.” Bands are a drift-control upgrade if you can execute cheaply.
ETF CHECKLIST
How to choose a world ETF (MSCI World vs FTSE All-World)
One page that prevents 90% of beginner confusion: index choice, UCITS wrapper, costs that matter, and execution rules.
BROKER WORKFLOW
Best default for UCITS ETF investors: Interactive Brokers
If you want broad market access, solid execution, and typically strong FX handling, IBKR is the cleanest “do it once, do it right” setup for many European investors.
Disclosure: We may earn a commission if you open an account using our links. You do not pay extra.
Common mistakes (and the blunt fix)
Too many ETFs
More ETFs usually means more decisions, more tinkering, and more chances to quit at the worst time.
Chasing yield
Dividend chasing and junk-bond “income” breaks the stability sleeve and increases downside risk.
Ignoring spreads and order types
Market orders on illiquid ETFs are self-inflicted slippage. Use limit orders.
No rebalancing rule
If you don’t define a rule, you’ll rebalance emotionally (which is the worst possible method).
CLUSTER
Next steps: build the portfolio correctly (ETF choice)
Equity core selection: index, costs, listings, and what matters.
The bond sleeve is about stability. Learn duration, credit, and FX risk.
Most relevant for bonds: hedging can reduce volatility in the stabilizer sleeve.
Why “cheap TER” is not the same as “cheap outcome.”
CLUSTER
Next steps: implement and maintain (rebalancing + execution)
A simple rule set so you maintain allocations without over-trading.
Evidence for when to rebalance: drift triggers vs calendar timing.
Execution costs matter when you rebalance. Limit orders reduce slippage.
Pick a broker that makes long-term investing + rebalancing cheap and easy.
FAQ
Do I need emerging markets?
Should my bond ETF be EUR-hedged?
Is a two-fund portfolio fine?
How often should I rebalance?
Does the ETF trading currency (EUR/USD) change currency risk?
If you do nothing else: choose a target mix and automate contributions
The three-fund portfolio works because it’s simple enough to follow for years. Complexity is usually just procrastination in disguise.
Educational content only. Not personalized investment or tax advice. Tax rules vary by country and can change. Confirm withholding rates, treaty eligibility, and local reporting rules before acting.