Warren Buffett believes in a lazy portfolio
A lazy portfolio is a diversified portfolio that allows you to grow your wealth without stress or a lot of work.
There is no active trading, no monitoring your stocks every day, and no paying to handle your money.
Let’s make clear what’s a lazy portfolio? In short, the lazy portfolio is passively managed, low-cost, diversified and tracks an index.
Actually, a lazy portfolio is a simple set-it-&-forget-it strategy. It requires a minimum of maintenance so we can easily say it is a passive investing strategy. Due to its nature, it is suitable for long-term investors. In essence, it is a buy&hold strategy that working very well for investors that feel fears when they have to make investing decisions. Even more, this strategy provides investors to avoid greed, maybe the most dangerous feeling in the stock market.
The lazy portfolio isn’t only for lazy investors, this has to be clear. It is for investors who want to avoid high risks while investing. We will introduce some of the best lazy portfolios that could provide above-average returns with below-average risks.
How to recognize the best lazy portfolio?
Actually, it is yours, the one that you maintenance. Each investor has its own style of managing, a different approach, so the way of investing is absolutely individual. But the goal is the same – to outperform the market and generate the highest-as-possible returns.
In most cases, a lazy portfolio can do that. Even Warren Buffett believes in a lazy portfolio, you can ask him. Also, many other successful investors built a lazy portfolio instead of fancy strategies.
But in most cases, a lazy portfolio will not give you to time the market, or to beat it. Also, it will never give you a chance to pick individual stocks but, at the same time, it is low-cost and loaded with fewer fees.
A selection that makes money
Index funds are a good choice as being less volatile. Well, you will not earn your money fast but you could stay in the market for a long time, over 10 years, for example. And you’ll make a profit.
Index investing is essential for laziness. Trust us. You don’t need to actively manage ETFs. What you have to do is to choose among several different recipes but generally, they come into three categories:
Two-fund portfolios
Three-fund portfolios
Four-fund portfolios
Two-fund portfolio
A two-fund portfolio is suitable for investors who want an easy asset allocation portfolio. The two-fund portfolio is built of one fixed-income fund and one equity index fund. You will find your selections depending on the asset class and asset type.
It easy to create a two-fund portfolio.
There are almost 2,000 ETFs out there and you can pick any of them.
First, decide which assets you need. Stocks and bonds are of the core asset classes and your lazy two-fund portfolio will need them. Stocks perform well when the economy is good. But, bonds will protect your portfolio from market uncertainty. Of course, you don’t need to hold stocks and bonds, you can choose something else, as we said.
If you are a very lazy investor your two-fund portfolio could be consists of 60% of total world stock index fund or ETF and 40% of US diversified bond index fund or ETF, for example.
Three-fund portfolio
A three-fund portfolio is composed of only three assets. They are usually low-cost index funds. It requires very little maintenance on your part and that’s why it is another example of a lazy portfolio.
It is a pure 60/40 rule. This one recommends investing in international index funds and stock market index funds. For example, according to Taylor Larimore, an advocate of holding investing simple, all you need is to handle with three mutual funds. That will require an hour per year managing your money, he said. You may diversify your three-fund portfolio on 40% of bonds, 42% of stocks and 18% global stocks. According to some experts, it is the best proportion.
Four-fund portfolio
The best example of this kind of lazy portfolios maybe is Dr. Bernstein’s “No-Brainer” lazy portfolio.
Dr. William Bernstein wrote “The Intelligent Asset Allocator” and “The Birth of Plenty”. He has promoted the capability of the index fund over individual stocks and bonds.
One portfolio that he proposed in “The Intelligent Asset Allocator” is named the “No-Brainer” portfolio. It is composed of 4 equal funds: 25% bonds, 25% global stocks, 25% US stocks and 25% small-cap US stocks. No-brainer indeed.
But this portfolio will give you a chance to diversify the risk over time.
If you are smart, you can be lazy
You will show you are a really clever investor if you set up all of your buying to be automatic. For that, you will need SIP – a systematic investment plan. Mutual fund or brokerage could help you with this. In this way, you will lessen the risks of market fluctuations. Moreover, this will provide you invest a fixed sum in a mutual fund plan at regular periods. For example, you can invest $500 in a mutual fund each month. It is a helpful tool.
Manage no-load funds
As we said, a no-brainer is really good. If you use no-load funds for your lazy portfolio you will avoid sales charges, so-called loads. Well, to make this clear. You are dealing with mutual funds and it is quite possible to do all the necessary things related to your portfolio and investments, yourself. So, why should you pay any additional fees? The point is to keep your cost low to boost your returns, right?
Rebalance your lazy portfolio
Re-balancing a lazy portfolio is simply turning the current investment allocations back to the initial investment allocations. So, you will need to buy or sell shares to bring back the allocation percentages into the initial balance.
Re-balancing is important maintenance and you should do it periodically, for example, once per year. Well, there is always a possibility with, for example with mutual funds, to set up automatic rebalancing.
Advantages of a lazy portfolio
Lazy investing could be the best way to invest. First of all, it is simple Holding just a few funds makes things easier. Further, it is low-cost investing since you don’t need to pay any fees for trading, managers, etc. If you build a lazy portfolio you just have to buy some cheap assets and voila. But the most important feature is the diversification. You can hold thousands of stocks and bonds with just several investments.
Disadvantages of a lazy portfolio
It isn’t easy to find some disadvantages, but there are some things to consider before starting.
One of them is tax-loss harvesting. if investing with 2 or 3 funds, you might miss out on some tax-loss harvesting possibilities. The other problem is the lack of customization. You can’t customize a lazy portfolio like you can with others. But that is the point, to keep it simple. Simplicity is the amazing part of it.
