Why a Lazy Portfolio?

A Lazy Portfolio eliminates ten major investment risks:

  1. It helps prevent shortfall risk - the risk that inflation will outstrip your purchasing power in retirement.
  2. It keeps you from managing your money too conservatively. T-bills and certificates of deposit won't do any heavy lifting.
  3. It prevents you from running your portfolio too aggressively. So you don't have to worry about your investments going up in flames.
  4. It requires no economic forecasting or market timing. It eliminates the risk of being in or out of the stock market or asset sector at the wrong time.
  5. It forces you to "buy low and sell high" with set periodic rebalancing instead of "buying high and selling low" because of greed or panic.
  6. It eliminates individual security risk. Since there are no individual stocks or bonds, there is no possibility of your portfolio cratering because you own a Enron, Worldcom, Lehman Brothers or AIG.
  7. It is exceptionally cost effective. It keeps you from falling prey to Wall Street's mountain of fees.
  8. It is highly tax efficient. It prevents the IRS from taxing your portfolio to death.
  9. It does not require you to use a broker, money manager, or investment advisor and thus eliminates the risk of unwise delegation. Since you're managing your money yourself, there's absolutely no "Bernie Madoff" risk.
  10. It's not so complicated that you can make a terrible mistake. It is so simple to use, it allows you to manage your money yourself using just 120 minutes a year to rebalance. The rest of the time you are encouraged to sleep, exercise, travel, play golf, or spend time with your family and friends.

Remember: Time, not money, is your most precious resource. It is perishable, irreplaceable and, unlike money, cannot be saved.

The real beauty of Lazy Portfolios is that they allow you to redirect your time to high-value activities, whether that's spending more time researching healthy habits, sleeping, exercising, work you enjoy, part-time income generating opportunities, pursuing your favorite activities, or just relaxing with your friends and family. A Lazy Portfolio gives you a superb opportunity to grow your wealth. But it guarantees you more time to devote to the people and pastimes you love. Perhaps that is what recommends Lazy Portfolios the most.

- Alex Green


In the 20 years ending Dec. 31, 2012, the Standard & Poor's 500 Index compounded at 8.2% while the average investor in U.S. equity funds made only 4.3%. In other words, nearly half the return of the market was lost.

How did investors lose half the return of the market? Where did it go? Three powerful forces took it away.

  • First, investor behavior, mostly emotion-based buying and selling, costs two percentage points. That brings the retur down to 6.2%.
  • Second, there's the cost of running funds that are trying to beat the market. The average annual cost of operating a fund, 1.3%, reduces the return further, to 4.9%.
  • Third, portfolio turnover is almost always higher in actively managed mutual funds sometimes much higher. This can take away another 0.6 percentage points, bringing the return down to the 4.3% reported by Dalbar.

Those numbers refer to equity funds. The results were much worse with bond funds. In that same 10 years, the Barclays Aggregate Bond Index returned 6.3% a year; but average investors in bond funds made only 1%. It's bad enough that equity investors received only 52% of the return of the market. Bond investors, however, got only about 15% of what they could have gotten with a bond index.

There's not much mystery about the source of the problem with investing in bonds. For many years the bond market has been overshadowed with the threat of higher interest rates, a threat that has received plenty of attention in the media. This has kept many investors away from longer-term bonds, which have more interest-rate risk, even while interest rates continued to decline, seemingly against all odds. The media, as well as many securities salespeople, repeatedly warned investors in 2011 to steer clear of long-term government bonds. In that year, those bonds returned 27%.

Dalbar's findings have not changed much over the 20 years the firm has been updating its study. The latest report repeats a conclusion Dalbar has reached year after year:

"No matter what the state of the mutual fund industry, boom or bust: Investment results are more dependent on investor behavior than on fund performance. Mutual fund investors who hold on to their investments are more successful than those who time the market."

I think the most dependable way to achieve the full returns of the market is to invest in a diversified mix of index funds with low expenses [a Lazy Portfolio]. If you couple this with patience and with enough bond funds to keep you within your comfort level, then I think you are likely to be more successful than 99% of all other investors.

- Paul Merriman


A humorous example of why you should use a diversified lazy portfolio consisting of index funds instead of a non-diversified portfolio of actively managed funds.