The Best Lazy Portfolios for Wealth Building

By in Investing

The best lazy portfolio is the one set up in line with your risk tolerance and rebalance regularly. In investing there’s no one right way to invest or manage your portfolio. In fact there are hundreds of different approaches, and probably more.

Consider the active portfolio managers, they all have their own ideas about how to get the highest returns for their particular strategies. Then there are the hedge funds, clamoring for alpha from creative investment strategies. Finally, the market timers think they will outsmart the indexes and know how to invest at the bottom and get out at the top.

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In most cases, your best lazy portfolio will outperform all those other fancy approaches. If you don’t believe me, then check out Mark Hulbert, William Bernstein, and scores of other well regarded investors and researchers. 

Hey, even Warren Buffett, one of the greatest investors of all time, believes in a lazy portfolio. 

My Lazy Portfolio Story

For several decades I was an investment portfolio manager. During that time I researched individual stocks and bought and sold them for my company and our family investment portfolio. I was obsessed reading everything available, from Graham, Buffett, Bernstein, Lynch even William O’Neil. I subscribed to the American Association of Individual Investors (AAII), Morningstar, the Wall Street Journal, Value Line and more. My individual investing strategy was simple, digging into corporate and economic trends, comparing valuation, debt, profitability ratios and comparing with their historical averages. Buying and selling individual stocks was challenging and profitable.

I was successful and content with my methods and returns.

Once I entered the in the Penn State MBA program, I learned about lazy investing or passive investing studies and research.

On the first day of my investing portfolio management class the professor asked who could beat the market averages. Of course, my hand shot up. After all, most years, my stock picking, beat the S&P 500.

Then, while digging into the investing research, I found out that – over the long term – individual stock pickers rarely beat investing in a portfolio of diversified index funds. And even the stellar portfolio managers, rarely continued to beat the market over the long term. And, today, more so than ever, stock pickers are competing with sophisticated computerized algorithms that are smarter than most individual investors.

My investing methodology was upended.

At that point, I decided to transition from a stock picker to a lazy investing approach. Although to this day, I still hold a few individual stocks, the majority of our portfolio is invested in our best lazy portfolio of index mutual and exchange traded funds.

What is a Lazy Portfolio?

A lazy portfolio is a set it and forget it collection of stock and bond mutual funds or ETFs, invested in percentages that fit with your personal risk profile. The idea behind this concept is that most investors do not beat the investment returns of the major market indexes.

Lazy portfolios are also called “passive investing.” That’s because index funds copy the investments owned by popular indices, and infrequently buy and sell the securities within the fund. This is in contrast with “active investing” where fund managers implement an asset buying and selling strategy in an effort to beat the returns of the indices.

Vanguard has extensive research that demonstrates the outperformance of a Vanguard lazy portfolio over most actively-managed investment funds.

Studies have shown that even if an investor or fund beats the market one year, they’re unlikely to repeat that out-performance over the long term.

A typical lazy portfolio includes low-fee index funds, that copy the assets owned by popular indices like the:

S&P 500 stock market index –  a market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S

Russell 3000 index – a total stock market index which tracks the performance of the 3,0000 largest US-traded stocks and represents about 98% of the US stock market.

Nasdaq 100 – an index that includes 100 of the largest companies listed on the Nasdaq stock exchange and includes many popular technology firms.

Bloomberg Barclays U.S. Aggregate Bond Index – a diversified bond index fund that is frequently used to represent the entire bond universe.

There are hundreds of indexes that include portions of the US and global stock and bond markets.

Another reason that the best lazy portfolios include a diverse mix of low-fee ETFs is to keep costs low, so more investor dollars go towards the investments, and less to the fund managers.

The recipe for market matching returns is to buy stock and bond funds in the percentages that align with your financial situation, goals, and risk tolerance. Then rebalance the investments to return to the preferred percentages each year.

Rebalancing means that you buy and/or sell certain assets so that your preferred asset allocation remains.

For example, your preferred lazy portfolio asset allocation might be 70% in stocks and 30% in bonds. But if bonds outperform stocks during the year, at the end of the year, your asset allocation might drift to 35% bonds and 65% stocks. At the end of the year, you’ll sell 5% of your bond fund and purchase 5% more of the stock fund.

Why you May Want a Lazy Portfolio

  • Low management fees
  • Good returns
  • Easy to maintain

What is the Lazy Portfolio Performance?

One of the most common investing questions about a strategy is, “What is the investment performance?”

That question typically describes the portfolio performance of returns during the past year.

So, if your portfolio was worth $10,000 at the beginning of the year, and at the end, its value was $10,100, your portfolio performance or return was 10.0%.

The best lazy portfolio returns will replicate the returns of the underlying investment funds during the year.

For example, let’s assume that you invested in a Vanguard lazy portfolio:

Asset ClassVanguard Index FundPercentage1-year return
Vanguard Total Stock MarketVTSMX30%22.95%
Vanguard Developed MarketsVTMGX15%14.54%
Vanguard Emerging MarketsVEIEX05%29.13%
Long Term Treasury BondsVUSTX15%4.81%
Inflation Protected BondsVIPSX15%9.47%
Real Estate – REITVGSIX20%-4.83%
Total Portfolio  11.70%

Portfolio source:Yale’s Unconventional U – Marketwatch Lazy Portfolio 2/13/21

The returns of the portfolio replicate the returns of the funds, in the percentages invested. So, the Vanguard Total Stock Market index fund earned 22.92% during the past year. Multiply 22.95% by 30%, since that’s the percentage invested in the lazy portfolio. Add up all of the returns multiplied by their percentages and you’ve got the total return of the portfolio.

In most cases the index funds approximate the returns of their underlying benchmark.

So, if your lazy portfolio invested 50% in the Vanguard Total Stock market and 50% in Inflation Protected bonds, then your one-year performance would be 16.21%. [(22.95% + 9.47%)/2 = 16.21%]

Ultimately, your return will approximate that of the returns of the underlying low fee index funds.

There are many different types of lazy portfolios to construct. The underlying similarity is that they all use low fee index funds. But, which indexes you choose to include, will determine your returns for a particular year.

If you’re ready to invest and want a few easy lazy portfolios, here are some ideas.

Best Lazy Portfolio Ideas

For the laziest investors, this is my favorite:

  • 60% All World Stock Index Fund or ETF
  • 40% US diversifed Bond Index Fund or ETF

This two-fund lazy portfolio invests in one stock fund which covers the entire worlds stock markets and one bond index mutual funds. Depending upon your risk tolerance, you can choose the percent invested in each fund. The more conservative investors will lean towards higher allocations invested in the bond fund, while the more aggressive investors will boost the stock fund amount.

Bonus: Best Asset Allocation Based On Age and Risk Tolerance

Lazy Portfolios With Vanguard Funds

2 Lazy Portfolios-Laziest and Bernstein

William Bernstein, former physician turned prolific investing researcher, author and wealth manager recommends this four-fund allocation on the Marketwatch lazy portfolio site:

  • 25% Vanguard European Stock Index Fund Investor (VEURX)
  • 25% Vanguard Small-Cap Index Fund  (NAESX)
  • 25% Vanguard 500 Index Fund (Investor class) (VFINX)
  • 25% Vanguard Total Bond Market Index Fund (Investor class) (VBMFX)

This equally divided lazy portfolio limits the bond investments to 25% percent of the entire portfolio with the remaining 75% equally divided among a broad US stock market index fund. The stock portion of the portfolio includes a European equity index fund, and a U.S. small capitalization index fund.

Bernstein’s portfolio is capitalizing on the research that smaller stocks might outperform the total U.S. stock market over the long term. 

Friedberg Family Lazy Portfolio

Best lazy portfolio for conservative #investors

I spent some time deciding which funds and percentages I was comfortable with and chose the following best lazy portfolio for our family:

Why This Friedberg Family Best Lazy Portfolio Is Good For Us

We’re aproaching retirement and have reached our ‘number’.

We’re more concerned with capital preservation than appreciation. That’s why we have 42% of our investment assets allocated to the fixed category.

The total stock market category allows us to participate in the U.S. market.

The small cap value allocation capitalizes on the Fama and French research that suggests that over the long term, small cap and value stocks outperform the total stock market indexes.

I expect the developing world to out perform the U.S. markets in the future, so we commit 7% to emerging markets.

Real estate is an important category and may be less correlated with the stock markets. I also have a sentimental attachment to real estate due to my long history of working for a real estate holding company.

Read: MarketWatch Lazy Portfolios

I’m not suggesting that any of these portfolios are best for you. But only, that if you want an easy way to invest, you might consider creating your own lazy portfolio of ETFs or mutual funds.

Set Up Your Lazy Portfolio – The Easy Way

If you’re just getting started, you might consider creating your lazy portfolio at M1 Finance. The benefit of investing with that firm is that once you set up your portfolio, M1 will rebalance it for you. And that saves a lot of time!

In fact, we have an account with M1 Finance and like the fact that you can invest in nearly 6,000 stocks and ETFs without a management fee. They also offer pre-made portfolios, so you don’t even need to choose your own funds!

M1 Finance Pre-made Investment Portfolios

For lazy investing, you might consider:

  • General Investing
  • Plan for Retirement
  • Just Stocks & Bonds

General Investing

The general investing pre-made choices are ideal for your lazy portfolio. Just choose your risk tolerance, from ultra conservative to ultra aggressive and you’re done.

Here are the investments included in the moderately aggressive option:

Notice that this is actually a Vanguard Lazy portfolio, premade to fit the moderately aggressive risk tolerance.

For the lazy investor, who is investing for the long term, this type of investment strategy is an easy way to build wealth for tomorrow.

As of February, 2021, the dividend yield for this investment mix is 1.868% and the average expense ratio of the funds is a rock-bottom 0.05%.

Since February 15, 2016 this diversified asset allocation of Vanguard Funds returned 80.20%, almost doubling in five years.

The Investing Takeaway

What is the best lazy portfolio?

There is no best portfolio for all investors. The best lazy portfolio is the one you set up in line with your risk tolerance and investing preferences. Since no one can predict the future, there are no guarantees about the future returns for any future specific investment allocation.

Set up your investment allocation, rebalance every year, then sit back and go about living your life. It’s likely your investments will do just fine over the long-term. And, remember to understand basic investing concepts as you continue your journey. 

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Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t personally believe is valuable.