What is the best UK global equity ETF for a 3-fund portfolio?

For most UK investors, VWRL (Vanguard FTSE All-World) at 0.22% OCF is the default. It covers ~3,500 stocks across developed and emerging markets. Cheaper alternatives if you don't need emerging market exposure include VHVG (0.12%) or HMWO (0.15%) — both developed-markets-only. For maximum coverage, SPYI includes small-caps for ~9,000 stocks total at 0.17%.

How much should I have in bonds in my UK ISA?

Rule of thumb: roughly your age minus 20, as a percentage. So a 30-year-old has 10% bonds, a 50-year-old has 30%, a 65-year-old has 45%. This is a starting point — adjust for your risk tolerance, time horizon and other assets (pension, property). The key is having SOME bonds to smooth the journey, even if mathematically a 100% equity portfolio has higher expected return over very long horizons.

Should I rebalance my UK ISA portfolio?

Yes — typically once per year is enough. Annual rebalancing in April (when the new £20,000 ISA allowance opens) is a natural anchor. Direct new contributions toward whichever asset is most underweight rather than selling existing holdings (avoids capital gains and trading costs). See our rebalancing guide for the full mechanic.

How to build a 3-fund portfolio in a UK ISA

Last reviewed by the UK Tax Drag editorial team · 12 May 2026 · How we review · Next review due 12 November 2026 · See what changed · Report an error

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How to build a 3-fund portfolio in a UK ISA?

Quick answer: A UK 3-fund portfolio consists of: (1) a global equity ETF covering ~3,500 stocks worldwide (e.g. VWRL, IWDA, HMWO); (2) a UK gilt or global bond ETF for stability (e.g. IGLT, VGOV, AGGG); (3) cash or money market for emergency liquidity. Typical allocation by age: 20-30s: 90% equity / 10% bonds +…

Key points:

Bonds smooth the ride. Equity drawdowns of -30% to -50% have happened multiple times in modern history. A 20% bond allocation typically reduces maximum drawdown by 5-10 percentage points.
Cash gives optionality. A cash buffer of 3-6 months of expenses prevents forced selling during market crashes. Without it, a job loss during a recession can force you to sell at the worst time.

A UK 3-fund portfolio consists of: (1) a global equity ETF covering ~3,500 stocks worldwide (e.g. VWRL, IWDA, HMWO); (2) a UK gilt or global bond ETF for stability (e.g. IGLT, VGOV, AGGG); (3) cash or money market for emergency liquidity. Typical allocation by age: 20-30s: 90% equity / 10% bonds + cash; 40s: 80/20; 50s: 70/30; 60+: 60/40. Total OCF should be under 0.15%. Rebalance once per year, typically in April after the new ISA allowance arrives.

Why three funds and not one

A single global equity fund (e.g. Vanguard FTSE All-World VWRL) holds ~3,500 stocks across 50+ countries. That alone captures the diversification benefit. So why add bonds and cash?

Bonds smooth the ride. Equity drawdowns of -30% to -50% have happened multiple times in modern history. A 20% bond allocation typically reduces maximum drawdown by 5-10 percentage points.
Cash gives optionality. A cash buffer of 3-6 months of expenses prevents forced selling during market crashes. Without it, a job loss during a recession can force you to sell at the worst time.
Behavioural anchor. Volatility is the price of long-term returns. A 100% equity portfolio is mathematically optimal over 40 years but most investors panic-sell during bear markets. The bond/cash anchor keeps you invested.

The simplest variant — one fundIf you genuinely won't touch the money for 25+ years and have separately-held emergency cash, a one-fund portfolio (VWRL or IWDA only) is mathematically defensible. The 3-fund structure is the recommended starting point for most investors because of the behavioural and liquidity benefits.

Component 1: Global equity ETF

Ticker	Provider	OCF	Coverage
VWRL	Vanguard FTSE All-World	0.22%	Developed + emerging, ~3,500 stocks
IWDA	iShares Core MSCI World	0.20%	Developed only, ~1,500 stocks (no EM)
HMWO	HSBC MSCI World	0.15%	Developed only, ~1,500 stocks
VHVG	Vanguard FTSE Developed World	0.12%	Developed only, ~2,000 stocks
SPYI	SPDR MSCI ACWI IMI	0.17%	Developed + emerging + small-cap, ~9,000 stocks

Default pick: VWRL (Vanguard FTSE All-World)0.22% OCF buys you 3,500 stocks across developed and emerging markets. Distributing version (pays dividends as cash) and accumulating version (VWRP, reinvests) both available. Most popular UK global equity ETF for a reason — it just works.

Cheaper alternative if you don't need EM: VHVG or HMWO0.12-0.15% OCF, but you miss emerging markets (~10% of global market cap). If you're philosophically OK without EM, the savings compound over decades.

For maximum coverage: SPYI or add EM separatelySPYI includes small-cap stocks for the most complete equity exposure. Or hold VWRL + a small-cap ETF (e.g. ZPRS) separately.

Component 2: Bond ETF

Two schools of thought on bonds in a UK portfolio:

School A: UK gilts (domestic bonds)

Ticker	Holding	OCF
IGLT	iShares Core UK Gilts	0.07%
VGOV	Vanguard UK Gilts	0.07%
INXG	iShares £ Index-Linked Gilts	0.10%

Pros: No currency risk. Income predictable in GBP. Lower volatility for a UK-based investor.

Cons: Concentrated in UK government credit. UK gilts had a brutal 2022 — losing 30% in nominal terms at one point. Adding international bonds reduces this concentration.

School B: Global bonds (currency-hedged)

Ticker	Holding	OCF
AGGG	iShares Global Aggregate Bond GBP Hedged	0.10%
VAGS	Vanguard Global Bond GBP Hedged	0.10%

Pros: Diversified across 25+ countries. Currency-hedged so no GBP volatility. Lower drawdown than UK gilts alone.

Cons: Slightly higher cost. Lower historical UK income (more US Treasury-heavy).

Default pickFor investors holding bonds purely as portfolio ballast — global hedged bonds (AGGG, VAGS). For investors using bonds as direct income — UK gilts (VGOV, IGLT). Both are defensible.

Component 3: Cash / money market

For ISA cash component, options include:

Platform cash — most SIPP/ISA platforms pay 2-4% on uninvested cash. Convenient but lower than best-buy savings.
Money Market ETF — e.g. CSH2 (Lyxor Smart Cash) at ~4-5% yield, low risk, FCA-regulated. Counts as an investment within S&S ISA.
Cash held externally — open a Cash ISA separately (£20,000 allowance is shared). Holds the cash outside the S&S ISA platform.

Most efficient: hold cash in Cash ISA, equity + bonds in S&S ISAThis splits the £20k allowance but uses each wrapper for its strength. Cash ISA pays current best-buy savings rates (4-5%), S&S ISA holds the long-term growth assets.

Allocation by age and goal

Age	Equity	Bonds	Cash	Rationale
20-30s	85-90%	5-10%	5%	40+ year horizon — full equity exposure tolerable
40s	75-80%	15-20%	5%	30 year horizon — modest bond ballast
50s (pre-retirement)	65-70%	25-30%	5%	20 year horizon — start de-risking
60s (early retirement)	55-60%	35-40%	5-10%	Drawdown begins — reduce sequence risk
70+	40-50%	45-55%	5-10%	Longevity bias — bonds for stability

Worked example: 35-year-old, £30,000 ISA balance, monthly £600 contributions

Target allocation: 85% equity / 12% bonds / 3% cash

Equity: VWRL @ £25,500 (~280 shares at £91)
Bonds: AGGG @ £3,600 (~75 shares at £48)
Cash: £900 (in platform money market or external Cash ISA)
Monthly £600: split £510 VWRL / £72 AGGG / £18 cash
Rebalance once/year in April when new £20,000 allowance opens

The four common mistakes

Mistake 1: Trying to time entry.Don't wait for "a better entry point". Markets are unpredictable. Drip-feeding over 6-12 months removes timing anxiety — see our drip-feed guide.

Mistake 2: Adding more funds for "diversification".10 ETFs is not more diversified than 3 well-chosen ones. Over-diversification just complicates rebalancing without adding meaningful returns.

Mistake 3: Holding individual stocks alongside.If you must hold individual stocks, keep them under 10% of total portfolio. The 3-fund core should be 90%+ of your allocation.

Mistake 4: Forgetting to rebalance after market moves.If equity grows 20% in a year while bonds grow 3%, your allocation drifts away from target. Without rebalancing the portfolio gradually becomes more equity-heavy and riskier. See our rebalancing guide.

Project your portfolio growth

The compound interest calculator shows what regular ISA contributions grow into over decades — for typical real returns of 4-6% per year.

Open the compound interest calculator →

Sources and references

UK ETF data from London Stock Exchange. Asset allocation research from Vanguard's "Principles for Investing Success" (2024 UK edition) and Pfau (2024) on UK safe withdrawal rates. Active vs passive performance from S&P Dow Jones SPIVA UK Scorecard 2024.

UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial or tax advice — see the content disclaimer for the full position. There are no affiliate links on this page — provider names are mentioned only to illustrate how different providers handle the same procedure.

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