<prompt> Human: A three-fund portfolio is... for those who want finer control and better tax-efficiency than they would get in an all-in-one fund like a Target Retirement fund.Why?Thanks!  <response>: Tax efficiency only matters if you have a taxable account. If you only have tax-advantaged 401k403bIRAetc. accounts, then it doesnt matter at all.Different types of earnings get taxed differently, and different assets tend to have different types of earnings. Bonds tend to mostly give income through dividends, with capital gains and correspondingly, sometimes capital losses being secondary. Stocks tend to mostly accrue capital gains, with dividends being secondary.Bond dividends are taxed at your income tax rate, while capital gains are taxed less, and stock dividends are also usually taxed less if theyre qualified dividends. So since bonds are taxed more, it makes sense to preferentially shelter them in tax-advantaged accounts.If you have multiple accounts, some of them being taxable, then you ideally dont want to put a TR fund in all of the accounts, because then youll be mixing stocks with bonds in your taxable account. It is more ideal to invest in the three underlying index funds directly, and manually place the bonds in tax-advantaged accounts, while preferring to keep the stock funds in taxable.Its a bit more interesting lately, with bond yields dividends being extremely low -- the typical rules stated above are less important right now than they have been in the past.Read more on the subject here: 