Retirement investing doesn’t need to be complicated. While financial advisors promote elaborate strategies with dozens of funds, the most effective approach for most South African investors requires just three JSE-listed ETFs. Welcome to the three-fund portfolio – a simple, powerful strategy that has quietly outperformed complex portfolios for decades.
Disclaimer: I am not a financial advisor. This information is for educational purposes only and should not be considered as financial advice. Always do your own research and consider seeking advice from a qualified financial professional before making any investment decisions.
What Is a Three-Fund Portfolio?
The three-fund portfolio, popularized by Bogleheads and inspired by Vanguard founder John Bogle, consists of just three broad market index funds:
- Local Equity – Captures the South African stock market
- International Equity – Provides global diversification
- Bonds – Adds stability and income
That’s it. No stock picking, no sector rotation, no market timing. Just three low-cost ETFs that capture the returns of thousands of companies worldwide while you sleep.
Why This Strategy Works
The genius isn’t in complexity – it’s in simplicity. Here’s why the three-fund approach outperforms:
- Broad diversification: You own pieces of thousands of companies across multiple countries
- Low costs: Index ETFs charge 0.1-0.5% annually versus 1-2%+ for active funds
- Tax efficiency: Less turnover means fewer taxable events
- Easy rebalancing: Just three funds to monitor and adjust
- Behavioral simplicity: Less temptation to tinker or panic sell
Studies consistently show that low-cost index portfolios beat 80-90% of actively managed funds over 15+ year periods. The three-fund portfolio gives you this advantage while keeping things dead simple.
The South African Three-Fund Blueprint
Here’s how to build your three-fund portfolio using JSE-listed ETFs:
Fund 1: Local Equity (JSE Exposure)
Recommended: Satrix 40 (STX40) or Satrix SWIX (STXSWX)
These ETFs track South Africa’s largest companies. The Satrix 40 follows the JSE Top 40 Index, while SWIX weights companies by their actual South African operations (reducing exposure to dual-listed companies with primarily offshore earnings).
- TER: ~0.10% per year
- Why you need it: Local exposure, rand dividends, home bias balance
- Available on: EasyEquities, all JSE brokers
Fund 2: International Equity (Global Exposure)
Recommended: Satrix MSCI World ETF (STXWDM)
This fund gives you exposure to ~1,500 companies across 23 developed markets – Apple, Microsoft, Nestlé, Toyota, and thousands more. You get instant global diversification without the hassle of taking money offshore.
- TER: ~0.35% per year
- Why you need it: Diversification beyond SA, access to global growth, currency hedge
- Note: Denominated in rands but tracks USD performance
Fund 3: Bonds (Stability and Income)
Recommended: Satrix SA Bond ETF (STXGOV) or Satrix ILBI (STXILB)
Bonds reduce portfolio volatility and provide income. STXGOV holds South African government bonds, while STXILB holds inflation-linked bonds that protect against rising prices.
- TER: ~0.25% per year
- Why you need it: Reduces volatility, provides income, balances equity risk
- Pro tip: Split 70/30 between STXGOV and STXILB for both income and inflation protection
Age-Appropriate Asset Allocations
Your allocation between these three funds should match your age and risk tolerance. Here’s a practical framework:
Ages 20-35: Aggressive Growth (90/10 stocks/bonds)
- 45% Satrix MSCI World (International equity)
- 45% Satrix 40 or SWIX (Local equity)
- 10% Satrix Bonds (Fixed income)
Why: You have 30-40 years until retirement. Short-term volatility doesn’t matter. Maximize equity exposure for long-term growth.
Ages 35-50: Moderate Growth (75/25 stocks/bonds)
- 40% Satrix MSCI World
- 35% Satrix 40 or SWIX
- 25% Satrix Bonds
Why: Still decades to retirement, but gradually reducing volatility. You’re building substantial capital that needs some protection.
Ages 50-60: Balanced Approach (60/40 stocks/bonds)
- 30% Satrix MSCI World
- 30% Satrix 40 or SWIX
- 40% Satrix Bonds
Why: Retirement is approaching. You still need growth (you’ll live 20-30 more years), but you also need to protect what you’ve built.
Ages 60+: Conservative Income (40/60 stocks/bonds)
- 20% Satrix MSCI World
- 20% Satrix 40 or SWIX
- 60% Satrix Bonds
Why: You’re drawing income from the portfolio. Bonds provide stability and predictable income. You keep some equities for long-term growth (you might live to 90+).
Implementation: Getting Started
Here’s how to build your three-fund portfolio today:
Step 1: Choose Your Account
Open a Tax-Free Savings Account (TFSA) first. Max out your R36,000 annual contribution here for completely tax-free growth. Once maxed, use a standard investment account or retirement annuity.
Step 2: Determine Your Allocation
Use the age-based guidelines above as a starting point. Adjust based on your personal risk tolerance and other assets you own.
Step 3: Buy Your Three ETFs
Log into EasyEquities or your broker. Search for the ticker symbols and buy in your desired allocation. Even R500/month split three ways is a valid start.
Step 4: Set Up Monthly Contributions
Automate monthly investments. Dollar-cost averaging through regular purchases removes emotion from investing.
Step 5: Rebalance Annually
Once per year, check if your allocation has drifted. If your target is 45/45/10 but it’s now 50/42/8 due to market movements, sell some winners and buy laggards to restore balance.
Common Questions
Q: Can I use different ETFs?
Absolutely. NewFunds offers similar options (NFSWIX for local, NFGOVI for bonds). The principle matters more than the specific provider. Choose low-cost, broad market ETFs.
Q: Should I add a fourth fund?
You can, but it’s rarely necessary. Some investors add emerging markets or small-cap funds, but this adds complexity without proven benefit. Stick with three.
Q: What about property or gold?
The equity funds already include property companies and some commodity exposure. Adding dedicated property or gold funds is optional but not essential for most investors.
Q: How much do I need to start?
On EasyEquities, you can start with as little as R100 total across the three funds. Don’t wait for a large sum – start small and build consistently.
The Power of Doing Nothing
The hardest part of the three-fund portfolio? Resisting the urge to make it more complicated.
You’ll be tempted to add “just one more fund.” You’ll read about hot sectors or trendy investments. You’ll see others bragging about their latest stock pick.
Ignore it all.
The three-fund portfolio works precisely because it’s boring. No excitement, no clever tricks, no market timing. Just broad diversification, low costs, and decades of patient compounding.
History shows this approach beats almost everyone who tries to be clever. Your job isn’t to find the best stocks or time the market perfectly. Your job is to own a piece of the global economy through three simple funds, rebalance once per year, and let capitalism do the heavy lifting.
That’s it. That’s the entire strategy.
For most South African investors saving for retirement, these three ETFs are all you’ll ever need. Everything else is just noise.
Ready to build your three-fund portfolio? Open a TFSA on EasyEquities, buy your three ETFs, and get on with your life. Your future self will thank you for keeping it simple.