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Introduction to Lazy Portfolios

Posted By Jim On 08/11/2008 @ 6:09 am In Investing | 11 Comments

Ever heard of the Margarita portfolio? How about the Couch Potato portfolio? Or the No-Brainer portfolio? No?

They’re all Lazy Portfolios.

A Lazy Portfolio is one that you can just set it and forget it and relies on low cost index funds or ETFs. There’s nothing particularly special about any Lazy Portfolio, besides their use of low cost index funds, and one isn’t necessarily better than another in all economic scenarios. As with any investing strategy, there are pros and cons. The pros, that it’s simple and you make few decisions, results in cons in that you may become complacent and ignorant of your investment decisions. It’s better to keep it simple and well understood than to make it complex and obfuscated. I’d rather make a choice that turned out wrong than make a decision I didn’t understand.

How They Perform

Paul Farrell of MarketWatch tracks eight Lazy Portfolios each year [3] and in 2008, they have extended their winning streak of beating the S&P 500 for the sixth year (on a three-year and five-year basis). In other words, having a one of the eight Lazy Portfolios over the last six years has gotten you a better return than the stock market itself. (This year, three of the portolio’s got beat because they had a lot of REIT funds, but they are still besting the S&P over the last few years).

Here are the funds with the best names: (some of which weren’t featured in Paul Farrell’s wrapup)

Couch Potato Portfolio

This portfolio is the brainchild of Dallas Morning News columnist Scott Burns and is as simple as they come. All you need is 50% in the Vanguard 500 Index Fund (VFINX [4]) and 50% in the Vanguard Total Bond Fund Index Fund (VBMFX [5]). That’s it. You can go a little more aggressive with the variant Sophisticated Couch Potato Portfolio of 75% in the Vanguard 500 Index Fund and 25% in the Vanguard Total Bond Fund Index Fund.

Margaritaville Portfolio

This portfolio is also another one of Scott Burns’s creations and is the second simplest portfolio with equal parts of three funds: Vanguard Inflation-Protected Securities (VIPSX [6]), Vanguard Total International Stock Index (VGTSX [7]), and Vanguard Total Stock Market Index (VTI [8]).

No-Brainer Portfolio

Created by Dr. William Bernstein, a neurologist known for his work in modern portfolio theory and his book The Four Pillars of Investing [9], the No-Brainer Portfolio consists of four funds of equal weight: Vanguard 500 Index (VFINX [4]), Vanguard Small Cap (NAESX [10]) or (VTMSX [11]), Vanguard Total International (VGTSX [7]) or (VTMGX [12]), and Vanguard Total Bond (VBMFX [5]) or (VBISX [13]). There is also a No-Brainer Coward’s Portfolio that includes 9 funds.

Coffeehouse Portfolio

This little gem was created by money manager Bill Schultheis, author of The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life [14], created the Coffeehouse Portfolio that consists of seven funds:

  • 40% in Vanguard Total Bond Index (VBMFX [5])
  • 10% in Vanguard 500 Index (VFINX [4])
  • 10% in Vanguard Value Index (VIVAX [15])
  • 10% in Vanguard International Stock Index (VGTSX [7])
  • 10% in Vanguard REIT Index (VGSIX [16])
  • 10% in Vanguard Small-Cap Value Index (VISVX [17])
  • 10% in Vanguard Small-Cap Index (NAESX [10])

Those are the cooler sounding ones but there are many many others out there!


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URLs in this post:

[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/introduction-to-lazy-portfolios.html

[3] tracks eight Lazy Portfolios each year: http://www.marketwatch.com/News/Story/lazy-portfolios-sparkle-07-new/story.aspx?guid={73F4BC3A-D0EF-4BFA-9698-01D8DA27C91A}

[4] VFINX: http://finance.google.com/finance?q=MUTF:VFINX

[5] VBMFX: http://finance.google.com/finance?q=MUTF:VBMFX

[6] VIPSX: http://finance.google.com/finance?q=MUTF:VIPSX

[7] VGTSX: http://finance.google.com/finance?q=MUTF:VGTSX

[8] VTI: http://finance.google.com/finance?q=VTI&hl=en

[9] The Four Pillars of Investing: http://www.bargaineering.com/articles/r/amazon.php?asin=0071385290

[10] NAESX: http://finance.google.com/finance?q=MUTF:NAESX

[11] VTMSX: http://finance.google.com/finance?q=MUTF:VTMSX

[12] VTMGX: http://finance.google.com/finance?q=MUTF:VTMGX

[13] VBISX: http://finance.google.com/finance?q=MUTF:VBISX

[14] The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life: http://www.bargaineering.com/articles/r/amazon.php?asin=0976585707

[15] VIVAX: http://finance.google.com/finance?q=MUTF:VIVAX

[16] VGSIX: http://finance.google.com/finance?q=MUTF:VGSIX

[17] VISVX: http://finance.google.com/finance?q=MUTF:VISVX

Thank you for reading!