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Investment Policy Statement
Lazy portfolios are designed to perform well in most market conditions. Most contain a small number of low-cost funds that are easy to rebalance. They are "lazy" in that the investor can maintain the same asset allocation for an extended period of time, as they generally contain 30-40% bonds, suitable for most pre-retirement investors.
Two Fund Portfolio
It is possible to retain access to the broad US and International markets, as well as bonds, using only two funds. Rick Ferri has proposed a two-fund portfolio containing the total world stock market, and a diversified US bond market index fund as follows .
|% Allocation||Fund||Mutual Fund||ETF Fund (ER)|
|Investor's (ER)||Admiral's (ER)|
|40%||Vanguard Total Bond Market Index Fund||VBMFX (.22%)||VBTLX (.10%)||BND (.10%)|
|60%||Vanguard Total World Stock Index Fund||VTWSX (.35%)||-||VT (.19%)|
Three fund lazy portfolios
There are a number of popular authors and columnists who have suggested 3 fund lazy portfolios. These typically consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market.
In addition, consider that there are several close alternatives to these funds, especially when purchasing through vanguard. For example, consider that the "Vanguard Inflation-Protected Securities Fund" also has a short term alternative, "Vanguard Short-Term Inflation-Protected Securities Index Fund" (tickers VTIPX or VTAPX) which can offer slightly less volatility in NAV.
Core four portfolios
|Fund||Mutual Fund||ETF Fund (ER)|
|Investor's (ER)||Admiral's (ER)|
|Vanguard Total Bond Market Index Fund||VBMFX (.22%)||VBTLX (.10%)||BND (.10%)|
|Vanguard Total Stock Market Index Fund||VTSMX (.17%)||VTSAX (.05%)||VTI (.05%)|
|Vanguard Total International Stock Index Fund||VGTSX (.22%)||VGIAX (.16%)||VXUS (.16%)|
|Vanguard REIT Index Fund||VGSIX (.24%)||VGSLX (.10%)||VNQ (.10%)|
Rick proposes that investors first determine their bond allocation. With the remaining funds, allocate 60% to US stock, 30% to international and 10% to REIT. For example, for 60/40 and 80/20 portfolios, you would end up with the following :
|Desired Stock/Bond Allocation||Vanguard Total Bond Market Index Fund||Vanguard Total Stock Market Index Fund||Vanguard Total International Stock Index Fund||Vanguard REIT Index Fund|
Rick stresses that the exact numbers aren't important. For the 60/40 portfolio, you could increase Vanguard REIT Index Fund to 10%, drop Vanguard Total Stock Market Index Fund to 35% and the Vanguard Total International Stock Index Fund to 15% if you like round numbers.
The core-four is just a low cost foundation for your portfolio. You could add a slice of value stocks (US and/or International). You could split the bond portion between Treasury Inflation Protected Securities and nominal bonds, which would result in a slightly more conservative version of David Swensen's model portfolio (less international stock and less REIT, but otherwise the same four base funds plus TIPS.
More lazy portfolios
Beyond the simple 3- and 4-fund lazy portfolios are more complex portfolios. These are still "lazy" in that they contain enough bonds (typically 30-40%) to allow the investor to maintain the same AA for much of the accumulation phase of their lives. The more complex funds add REITs, and 'slice and dice' the US and/or International stocks, adding large and small value to the mix. It is worth noting that in some of the cases outlined below, a simpler portfolio may be able to accomplish similar goals. For example, a small and value tilt away from the market may be accomplished by adding a small cap value fund, thus 'tilting' from a total stock market fund.
Bill Schultheis's "Coffeehouse" portfolio
This simple 7-fund portfolio was made popular by Bill Shultheis' book The Coffeehouse Investor. He advocates 40% in an intermediate term bond fund and 10% each in various stock funds. More information can be found at The Coffeehouse Investor. The Coffeehouse Portfolio contains only 10% international stocks (17% of total equities). It slices up the domestic portion, but uses a total international fund.
William Bernstein's "Coward's" portfolio
William Bernstein is the author of several books including The Intelligent Asset Allocator and The Four Pillars of Investing. He introduced the Coward's Portfolio in 1996. The "coward" refers not to the investor's risk tolerance but to the strategy of hedging one's bets and having slices of a number of asset classes. This portfolio is similar to the Coffeehouse Portfolio except that short term bonds are used, and the international portion is divided into equal slices of Europe, Pacific and EM.
Frank Armstrong's "Ideal Index" portfolio
Frank Armstrong, author of The Informed Investor, proposed this portfolio for an MSN Money article. It contains a smaller allocation to bonds, and a much larger allocation to international stocks (in fact the equities, excluding REIT, are split 50/50 between domestic and international). Like Bernstein he advocates short term bonds. If the domestic slices were replaced by a total market fund, this portfolio would be very close to the 3-Fund portfolios, with a slice of REIT added.
David Swensen's lazy portfolio
David Swensen is CIO of Yale University and author of Unconventional Success. His lazy portfolio uses low-cost, tax-efficient total market funds, a healthy dose of real estate, and inflation-protected securities (TIPS).
Canadian versions of lazy portfolios
Main article: finiki:Portfolio Design and Construction
The following spreadsheet contains charts and tables of Canadian versions of Couch Potato portfolios. These portfolios are suggested by the Canadian Couch Potato web site.  The portfolios include:
- The Global Couch Potato: This simple portfolio—popularized by MoneySense magazine—gives exposure to stock markets in all developed countries, as well as a firm foundation of Canadian bonds.
- The Complete Couch Potato: This portfolio goes beyond the basics to add three additional asset classes (emerging markets, real estate and real-return bonds) while remaining extremely easy to manage.
- The Yield-Hungry Couch Potato:This portfolio is designed for investors who are seeking current income rather than long-term growth from their investments, and who are using a non-registered account.
- The Über–Tuber: This portfolio is based on the academic work of Eugene Fama and Kenneth French. Because it includes so many funds, it may be difficult to manage and is not recommended for inexperienced investors. It is not likely to be efficient for accounts less than $200,000.
The fifth tab in the spreadsheet contains a table containing suggested ETFs for funding the portfolio allocations. Additional details regarding the portfolios are available from Canadian Couch Potato.
- ↑ See Three-fund_portfolio for more information on 3-fund portfolios.
- ↑ Rick has stated that "The mix between U.S. stocks and international stocks can be changed to suit your preference for dollar exposure. Another option is to swap the total bond market index fund for an investment-grade corporate bond index fund that provides higher yield or a Treasury Inflation Protected (TIPs) fund the provides inflation protection."
- ↑ 1.0 1.1 1.2 1.3 Three Simple Index Fund Portfolios
- ↑ Kirk Report: Bill Schultheis' Coffeehouse Portfolios (2/13/2007) (Web site redesigned; link now requires paid membership.)
- ↑ Couch Potato Cookbook
- ↑ Canadian Couch Potato, viewed May 23, 2011.
- Lazy Portfolios at MarketWatch - Comparative returns of numerous lazy portfolios compiled by Paul B. Farrell, lazy portfolios story archive, and discussion board.
- The Kirk Report - Comprehensive blog post about dozens of lazy portfolios. (Web site redesigned; link now requires paid membership.)
- Couch Potato Cookbook, from assetbuilder.com - A set of lazy portfolios containing from 2 to 10 funds.
- Monthly Self-Managed Couch Potato Portfolio Returns, from assetbuilder.com - Monthly returns for the Couch Potato portfolios.
- The Three Fund Portfolio, forum discussion
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Wiki article link: [url=http://www.bogleheads.org/wiki/Lazy_Portfolios]Lazy Portfolios[/url]