The three-fund portfolio is one of the most popular ways to build a lazy index fund portfolio. By using just three index funds, you can get exposure to the entire global stock market and the entire U.S. bond market, maximizing your diversification to the global equity and U.S. bond markets.

As a result, trillions of dollars have poured into funds tracking these three asset classes. The three biggest mutual fund providers of index funds are Vanguard, Fidelity, and Schwab. Each is aggressively marketing their index funds to three-fund portfolio investors, and they are engaged in a price war, advertising ever lower index fund expense ratios. Each firm has cut fees on their index funds in the last year.

So what is currently the cheapest way to create a 3-fund portfolio in 2017?

The Vanguard, Fidelity, and Schwab Three-Fund Portfolios

We used the following portfolio to compute our head-to-head comparison:

  1. 60% Total Stock Market Index Fund
  2. 30% Total International Stock Market Index Fund
  3. 10% Total U.S. Bond Fund

We assume that you are able to get the lowest cost Premium (Fidelity) or Admiral (Vanguard) shares of a mutual fund. Institutional investors or regular investors through their employer 401(k) may have access to even cheaper versions of these funds, but for the purpose of this analysis, we will only look at funds that are available to all investors.

This portfolio is my personal preferred portfolio, although your portfolio may use the S&P 500 instead of the total stock market index, include a different amount of bonds based on your risk tolerance, or have more or less international stocks based on your view of the value of international stock exposure.

The Cheapest Portfolio at Vanguard, Fidelity, and Schwab

Here’s how you would build the three-fund portfolio using the big three index fund providers (Vanguard, Fidelity, and Schwab):

Asset Class/Provider Vanguard (ER) Fidelity (ER) Schwab (ER)
Total Stock Market VTSAX (0.04%) FSTVX (0.035%) SWTSX (0.03%)
Total Bond Market VBTLX (0.05%) FSITX (0.045%) SWAGX (0.04%)
Total International Stock Market VTIAX (0.11%) FSIVX (0.06%) SWISX (0.06%)
Three-Fund Portfolio Expense Ratio (60/10/30 ratio) 0.062% 0.0435% 0.04%

Schwab has the Cheapest Three-Fund Portfolio by a Hair (For Now)

Using only index funds, Schwab has the cheapest three-fund index fund portfolio, just beating out Fidelity by 0.0035%. Vanguard “lags” behind the other two funds, costing only 0.062% a year to own a three-fund portfolio.

Calculating The Fees on Your Own Three-Fund Portfolio

If the asset allocation on your three-fund portfolio is slightly different than mine, use the spreadsheet below to calculate the expense ratio of your three-fund portfolio at Vanguard, Fidelity, and Schwab:

(If you’re looking at this spreadsheet on a mobile device, it may be helpful to turn your phone sideways and view the spreadsheet in Landscape mode).


Don’t Choose a Fund Manager based on Fees Alone

It’s important to take a step back and look at the forest instead of the trees. On a $1,000,000 portfolio, the difference in expense ratios between Vanguard and Fidelity is $35. Even the difference between 1st-place Schwab and 3rd place Vanguard is only $220.

The difference in expense ratios at this point is essentially rounding error. Other factors, including tax efficiency and the tracking error of the individual index funds, may influence your portfolio’s returns more than any difference in expense ratios. Remember that some financial moves may be statistically significant, but clinically (or financially) insignificant.

Don’t miss the forest for the trees – Vanguard, Fidelity, and Schwab are all great options.

Expense Ratios Are A Moving (Falling) Target

And remember, these are the costs for building the three-fund portfolio in September 2017. Vanguard, Fidelity, and Schwab have all cut expense ratios within the last year, and I expect they each will continue to cut rates now. So the lowest cost index fund provider today may not be the lowest cost index fund provider tomorrow. And there aren’t much more expenses to cut anyway.


Schwab currently has the lowest fees on a three-fund portfolio, but Fidelity and Vanguard offer index funds that are so low in fees that cost should not be the determining factor of which broker you use.

What do you think? Which funds do you use to build your index fund portfolio? Did the expense ratios influence your decision on which firm to invest your money?


  1. Honestly I agree with your take, the margin of difference on these three is barely measurable. As such I just stay with the ones I started with for whatever reason. As a new investor there isn’t a wrong choice with their interface being about the only differentiator.

  2. It is difficult to compare the three International funds. VTIAX has small caps and emerging. SWISX has no small caps or emerging. FSIVX has no small caps. If you wanted to add those with a Schwab or Fidelity account there would be added cost compared to Vanguard.

  3. Other options include the ETF versions of the Vanguard Funds which can be purchased at Fidelity. Initial purchase includes a $4.95 trading commission, but setting the ETF’s to automatic dividend reinvestment is free. VTI (ER .04); VXUS (ER .11); BND (ER .05) – same fees as the mutual funds, but one must include the one time purchase $4.95 commission charge which is rather negligible when comparing it to the figure of a $10K minimum for Admiral Shares (.00495). The good news is that there is no minimum amount required to invest for the Vanguard ETF’s, and one gets Admiral Pricing. Same is true if purchasing these at Vanguard which trade commission free for those who open a brokerage account there.

    Blackrock iShares ETF versions of the Three Fund trades commission free, so is another option at Fidelity. ITOT (ER .03%); IXUS (ER .12%); AGG (ER .06%)


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