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, with the bond share usually rising nearer retirement. The lowest blended fee in this guide comes from InvestNow's Foundation Series Total World Fund (0.06%) for the global leg plus Kernel's NZ 20 and NZ Bond funds (0.25%/0.40%) for the NZ legs, since InvestNow's Foundation Series range doesn't include NZ-shares or NZ-bond funds. An all-Kernel three-fund combination (0.25%/0.25%/0.40%) keeps everything on one platform.
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)
Three-Fund Combinations in NZ Compared
Option 1: Lowest blended fee (InvestNow + Kernel)
InvestNow’s Foundation Series range doesn’t include a NZ-shares or NZ-bond fund, so the lowest-fee combination spans two platforms:
| Fund | Allocation | Fee |
|---|---|---|
| Kernel NZ 20 Fund (Kernel) | 20% | 0.25% |
| Foundation Series Total World Fund (InvestNow) | 70% | 0.06% |
| Kernel NZ Bond Fund (Kernel) | 10% | 0.40% |
Total blended fee: ~0.13% (0.2×0.25% + 0.7×0.06% + 0.1×0.40%) Platform fee: $0 on both platforms Minimum: $250 (InvestNow fund) + $1 × 2 (Kernel funds) Tax: All PIE, all taxed at PIR max 28% Note: The Foundation Series leg also carries a 0.50%/0.50% buy-sell transaction fee on top of its annual fee.
This is the lowest-cost three-fund combination in this guide, but it requires accounts on two platforms. If you’d rather keep everything on one platform, see Option 2.
Option 2: Kernel (one platform, $1 minimum)
| Fund | Allocation | Fee |
|---|---|---|
| Kernel NZ 20 | 20% | 0.25% |
| Kernel Global 100 | 70% | 0.25% |
| Kernel NZ Bond Fund | 10% | 0.40% |
Total blended fee: ~0.27% Platform fee: $0 Minimum: $1 per fund Tax: All PIE
Kernel’s NZ Bond Fund provides NZ government and corporate bond exposure (its fee, at 0.40%, is higher than Kernel’s core equity funds). All three funds sit on one platform with a $1 minimum.
Option 3: Smart NZX ETFs
| ETF | Allocation | Fee |
|---|---|---|
| Smart NZG (NZ Top 50) | 20% | 0.20% |
| Smart TWF (Total World) | 70% | 0.40% |
| Smart NZB (NZ Bond ETF) | 10% | 0.54% |
Total blended fee: ~0.37% Platform fee: $0 via direct Smart account Tax: All PIE
Intraday trading. Less convenient for auto-invest. Slightly higher bond ETF fee.
How to Set It Up (Lowest-Fee Example)
- Open an InvestNow account at investnow.co.nz and a Kernel account at kernel.co.nz (15 minutes each)
- Set your PIR rate (10.5%, 17.5%, or 28%) on both platforms
- Set up your target allocations:
- Foundation Series Total World Fund (InvestNow) — 70%
- Kernel NZ 20 Fund (Kernel) — 20%
- Kernel NZ Bond Fund (Kernel) — 10%
- Set up auto-invest on both platforms — contribute weekly or monthly
- Annually: review drift, redirect contributions to rebalance
Prefer a single platform? Use Option 2 (all-Kernel) instead and skip the InvestNow step.
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.
Where to check the latest data
Rates, fees and returns change often. Before deciding, check current figures yourself:
- Sorted Smart Investor: compares fees, returns and risk levels of KiwiSaver and managed funds.
- Disclose register: holds each fund's product disclosure statement and quarterly fund updates.
- Financial Service Providers Register: shows whether a provider is registered to offer financial services in New Zealand.
- The provider's own website: has its current rates, fees and full terms; these change more often than any comparison page.
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? The lowest-fee combination (Option 1): $250 for the InvestNow fund + $1 × 2 for the Kernel funds ≈ $252 minimum. All-Kernel (Option 2): $1 × 3 funds = $3 minimum — you can start immediately.