PORTFOLIO COMPARISON / ONE VARIABLE

Three-Fund vs 60/40 Portfolio Backtest

Isolate the historical effect of adding international equities to a stock and bond portfolio.

THE QUESTION

Does international diversification make a US-centered stock–bond portfolio more consistent across market conditions?

BASE PORTFOLIO60% US equities / 40% US bonds
CONTROLLED CHANGEUS equity / international equity / bond portfolio
ONLY CHANGED VARIABLEInternational equity allocation

The base rules, data treatment, and calculation assumptions remain visible throughout the comparison. Review the controlled portfolio backtesting used to interpret this result.

WHAT TO COMPARE

Read the trade-off as a system.

  1. 01Return difference
  2. 02Drawdown difference
  3. 03Tracking error
  4. 04Start-date sensitivity

WHEN TO LOOK

Locate where the difference appeared.

US-led marketsInternational-led marketsCurrency cyclesGlobal crises

A useful comparison shows whether an advantage was broad or created by one unusually favorable period. For a direct test of this risk, compare the same rules across multiple portfolio start dates.

OBSERVED RESULT / REAL MARKET DATA

What the comparison actually produced.

Adding an 18% international-equity sleeve lowered the ending value by $1,919 and did not improve maximum drawdown in this US-led decade. That is evidence of period dependence, not proof that international diversification is structurally ineffective.

WINDOWAug 2016–Jul 2026
CAPITAL$10,000 initial investment
CALCULATIONUS 60/40 uses VTI and BND. The three-fund variant keeps 40% bonds and divides equities into 42% VTI and 18% VXUS; annual rebalancing.
PortfolioEnding valueAnnualized returnMaximum drawdown
60% VTI / 40% BND$24,6429.44%−21.76%
42% VTI / 18% VXUS / 40% BND$22,7238.56%−22.10%

TEST ANOTHER ALLOCATION OR RULE

Change one variable in AI Backtest.

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