Template:Implementing an Investment Plan 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.
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.
Core Four Portfolios
|Vanguard Total Bond Market Index Fund||VBMFX||0.19%||BND||0.11%|
|Vanguard Total Stock Market Index Fund||VTSMX||0.15%||VTI||0.07%|
|Vanguard FTSE All-World ex-US Index Fund||VFWIX||0.40%||VEU||0.25%|
|Vanguard REIT Index Fund||VGSIX||0.20%||VNQ||0.10%|
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:
|Fund||Vanguard Total Bond Market Index Fund||Vanguard Total Stock Market Index Fund||Vanguard FTSE All-World ex-US 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 FTSE All-World ex-US 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.
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).
- 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.