Building a balanced, growth-oriented portfolio doesn’t have to be complicated. Many investors use a simple 3-fund portfolio to diversify across broad market segments without needing dozens of individual stocks or complex allocations. This modern approach typically includes a U.S. total stock market ETF (or S&P 500 ETF), a growth-oriented ETF, and a dividend-focused ETF. This combination offers a fresh alternative to traditional target-date funds, which often use bonds or international stocks in their allocations. Here’s a look at how you might consider balancing these ETFs across different age groups. (Remember: I’m not a financial advisor; this is based on my personal research and investment choices. I originally found this idea to form a foundation, growth and dividend ETF portfolio from one of my favorite personal finance YouTubers, Nolan Gouveia – “Professor G”.)
The Benefits of Investing in a Foundational ETF
Foundational ETFs, such as VTI, SPLG, and VOO, provide investors with broad market exposure, representing the largest companies across various sectors. These ETFs cover either the entire U.S. stock market or the S&P 500, offering a diversified, cost-effective way to capture market growth. By investing in a foundational ETF, you’re setting up a reliable portfolio core that reflects the overall health and performance of the economy. This diversified base is ideal for long-term growth and is generally less volatile than individual stocks, making it a steady building block for any age-based portfolio.
Example Foundational ETFs:
- VTI – Vanguard Total Stock Market ETF
- SPLG – SPDR Portfolio S&P 500 ETF
- VOO – Vanguard S&P 500 ETF
The Advantages of Adding a Growth-Oriented ETF
Growth ETFs, like QQQM, SCHG, and IYW, focus on sectors with high potential for expansion, especially in technology and innovation. These ETFs can boost portfolio growth by capturing high-performing companies that often experience rapid revenue increases and higher stock appreciation. Including a growth ETF as part of your portfolio allows you to tap into the benefits of cutting-edge industries and trending sectors. This is especially beneficial for younger investors or those with a higher risk tolerance, as growth ETFs tend to be more volatile but offer a significant upside over time, helping accelerate wealth accumulation.
Example Growth ETFs:
- QQQM – Invesco Nasdaq 100 ETF
- SCHG – Schwab U.S. Large-Cap Growth ETF
- IYW – iShares U.S. Technology ETF
Why Dividend ETFs Instead of Bonds?
In today’s low-yield environment, many investors are turning to dividend-focused ETFs, like SCHD, VYM, and DGRO, as a bond alternative. Dividend ETFs offer potential income while providing some upside with capital appreciation. Bonds can stabilize a portfolio, but their growth is limited, and inflation erodes their real returns over time. Dividend ETFs may provide a comparable income stream but with the added growth potential of equity.
Example Dividend ETFs:
- SCHD – Schwab U.S. Dividend Equity ETF
- VYM – Vanguard High Dividend Yield ETF
- DGRO – iShares Core Dividend Growth ETF
3-Fund Portfolio Suggestions by Age Group
Below, I’ll break down a sample 3-fund portfolio by age group, adjusting the allocations to suit different stages of life. These portfolios are examples only and are meant to inspire potential allocation strategies.
20s – High Growth Potential
At this stage, it’s often about maximizing growth. Younger investors may prioritize equities over fixed-income options.
- 70% Foundational ETF: VTI, SPLG, or VOO
- 20% Growth ETF: QQQM, SCHG, or IYW
- 10% Dividend ETF: SCHD, VYM, or DGRO
30s – Growth with Stability
With a longer timeline, this portfolio can still lean towards growth but starts to introduce dividend income for slight stability.
- 60% Foundational ETF: VTI, SPLG, or VOO
- 25% Growth ETF: QQQM, SCHG, or IYW
- 15% Dividend ETF: SCHD, VYM, or DGRO
40s – Balanced Growth and Income
As investors approach mid-life, portfolios may transition to balance growth with more income-generating assets.
- 50% Foundational ETF: VTI, SPLG, or VOO
- 20% Growth ETF: QQQM, SCHG, or IYW
- 30% Dividend ETF: SCHD, VYM, or DGRO
50s – Preparing for Income
With retirement on the horizon, investors often shift to income-producing assets without sacrificing too much growth.
- 40% Foundational ETF: VTI, SPLG, or VOO
- 15% Growth ETF: QQQM, SCHG, or IYW
- 45% Dividend ETF: SCHD, VYM, or DGRO
60s – Primarily Income-Focused
For those nearing or entering retirement, a portfolio designed to produce income is typically prioritized.
- 30% Foundational ETF: VTI, SPLG, or VOO
- 10% Growth ETF: QQQM, SCHG, or IYW
- 60% Dividend ETF: SCHD, VYM, or DGRO
Thoughts on the 3-Fund Strategy
I believe this strategy is a solid approach for many investors. It offers growth potential, income generation, and broad market exposure without relying on international or bond funds, which may appeal to those who want to keep it simple. By substituting bonds with dividend ETFs, investors retain a degree of income while still participating in the market’s overall growth, which could help combat inflation over the long term.
Disclaimer: This article is for informational purposes only and is not financial advice. I am not a financial advisor, and this information is based solely on my personal research and investment choices. Always conduct your own research or consult a professional to tailor a strategy to your specific financial goals.
