The three-fund portfolio is a Bogleheads classic: total NZ market + total international market + bonds. It covers every major asset class, costs next to nothing in fees, and outperforms most actively managed funds over time. Here’s how to implement it in New Zealand.
A three-fund portfolio for NZ investors: NZ shares + global shares + NZ/global bonds. A common starting split: 70% global shares / 20% NZ shares / 10% bonds — adjust bonds upward as you near retirement. Best implementation: InvestNow Foundation Series (three funds, 0.20% each, no platform fee) or Kernel (three funds, 0.25% each).
What Is the Three-Fund Portfolio?
The three-fund portfolio was popularised by Bogleheads (followers of Vanguard founder John Bogle). The principle: you need three index funds to achieve total global diversification:
- NZ shares — local market exposure, imputation credits, NZD
- International shares — global developed (and possibly emerging) markets
- Bonds — lower-risk component to reduce portfolio volatility and provide stability
That’s it. No sectors. No active bets. No stock picking.
Why Add Bonds?
Bonds are lower-risk than shares. They typically rise when shares fall (defensive correlation in recessions). Adding 10–30% bonds:
- Reduces portfolio drawdowns in bear markets (2008, 2020 COVID crash)
- Provides a rebalancing buffer (sell bonds when cheap, buy shares when shares are down)
- Lowers psychological stress for investors prone to panic-selling
Rule of thumb (Jack Bogle’s original): Hold your age in bonds — i.e., at 30, hold 30% bonds; at 60, hold 60% bonds. Modern interpretation: this is too conservative for many investors — consider holding 10–20% bonds less than your age.
NZ Three-Fund Allocations by Stage
| Life stage | NZ shares | Global shares | Bonds |
|---|---|---|---|
| 20s–30s (long horizon) | 20% | 70% | 10% |
| 40s (mid-horizon) | 20% | 65% | 15% |
| 50s (approaching retirement) | 15% | 55% | 30% |
| 60s+ (in retirement) | 10% | 40% | 50% |
These are starting points only. Your actual allocation depends on:
- Risk tolerance (how you’d feel watching your portfolio drop 40%)
- Other income sources (NZ Super at 65, rental income, business income)
- KiwiSaver allocation (your KiwiSaver may already hold bonds)
Best Three-Fund Combinations in NZ
Option 1: InvestNow Foundation Series (cheapest)
| Fund | Allocation | Fee |
|---|---|---|
| Foundation Series NZ Shares | 20% | 0.20% |
| Foundation Series International Shares | 70% | 0.20% |
| Foundation Series NZ Bonds | 10% | 0.20% |
Total blended fee: 0.20% Platform fee: $0 Minimum: $250 per fund ($750 total) Tax: All PIE, all taxed at PIR max 28%
InvestNow is the lowest-cost three-fund implementation in NZ.
Option 2: Kernel (best app, $1 minimum)
| Fund | Allocation | Fee |
|---|---|---|
| Kernel NZ 20 | 20% | 0.25% |
| Kernel Global 100 | 70% | 0.25% |
| Kernel NZ Bond Fund | 10% | 0.25% |
Total blended fee: 0.25% Platform fee: $0 Minimum: $1 per fund Tax: All PIE
Kernel’s NZ Bond Fund provides NZ government and corporate bond exposure. Better app, $1 minimum, good for beginners.
Option 3: Smartshares NZX ETFs
| ETF | Allocation | Fee |
|---|---|---|
| Smartshares NZG (NZ Top 50) | 20% | 0.20% |
| Smartshares TWF (Total World) | 70% | 0.20% |
| Smartshares NZB (NZ Bond ETF) | 10% | 0.34% |
Total blended fee: ~0.21% Platform fee: $0 via direct Smartshares account Tax: All PIE
Intraday trading. Less convenient for auto-invest. Slightly higher bond ETF fee.
How to Set It Up (InvestNow Example)
- Open an InvestNow account at investnow.co.nz (15 minutes)
- Set your PIR rate (10.5%, 17.5%, or 28%)
- Set up three funds with target allocations:
- Foundation Series International Shares — 70%
- Foundation Series NZ Shares — 20%
- Foundation Series NZ Bonds — 10%
- Set up auto-invest — contribute weekly or monthly
- Annually: review drift, redirect contributions to rebalance
Rebalancing the Three-Fund Portfolio
With three funds, drift is more common. Example after a year of strong global equities:
| Fund | Target | Actual | Action |
|---|---|---|---|
| Global shares | 70% | 76% | Reduce contributions here |
| NZ shares | 20% | 18% | Increase contributions here |
| Bonds | 10% | 6% | Increase contributions here |
Strategy: Direct new contributions to underweight funds rather than selling. This is tax-efficient and keeps you buying the laggard (low-buy-high discipline enforced automatically).
Three-Fund vs Other Approaches
| One-fund | Two-fund | Three-fund | Multi-fund | |
|---|---|---|---|---|
| Number of decisions | 1 | 3 | 4 | Many |
| Bond allocation | Built-in | None (equity only) | Explicit | Explicit |
| Annual maintenance | Minimal | Low | Low | Medium |
| Best for | Set-and-forget | Equity-only simplicity | Most investors | Experienced |
The three-fund portfolio is widely considered the optimal balance of simplicity and diversification for long-term investors.
Frequently Asked Questions
Should I use a NZ bond fund or international bond fund? NZ bond funds are simpler (PIE, NZD-denominated, no currency risk on the bond portion). International bond funds provide more diversification but add currency complexity and often aren’t PIE. For most NZ investors: NZ bond fund is sufficient.
I already hold KiwiSaver — does that count toward my bond allocation? Depends on your KiwiSaver fund. A balanced KiwiSaver fund (e.g., 60% equities / 40% bonds) already provides bond exposure. Factor this in — if KiwiSaver covers your bond allocation, your investment portfolio can be 100% equities.
What’s the minimum I need to start? InvestNow: $250 × 3 funds = $750 minimum. Kernel: $1 × 3 funds = $3 minimum — you can start immediately.