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A Lazy Portfolio (Bought on the Cheap)

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Yesterday I introduced you to Motif Investing (introduction here). The quick takeaway: it is a great way to buy up to 30 stocks with one single brokerage fee of $9.99. Oh and one other minor detail: they'll pay you up to $150 to do it.

I'm seriously considering trying it out myself. It seems ideal to run a set-it-and-forget-it-until-you-rebalance-it investing plan. Over the years, many people have written about "Lazy Portfolios" consisting of a few ETFs designed to broadly diversify your investments. It only makes sense that the Lazy Man have a Lazy Portfolio, right? My last attempt at a lazy portfolio was almost 7 years ago to the day. I imagine that portfolio with bonds and global real estate would have weathered the banking collapse in 2008 better than some portfolios.

Nonetheless, it is time for an update. Rather than rush into creating my own Motif, I thought, "Why run a strawman version by you, the readers, and get some feedback?"

Thus, I give to you the Lazy Portfolio (version 0.1):

InvestmentTypeTickerPercentageExpense RatioTotal Expense
Vanguard Total Stock MarketUSVTI25%0.050.013
Vanguard Small-CapUSVB10%0.090.009
Vanguard Small-Cap ValueUSVBR5%0.090.005
Vanguard Total International StockInternationalVXUS17%0.140.024
Vanguard Emerging MarketsInternationalVWO17%0.150.026
iShares MSCI Frontier 100InternationalFM6%0.790.047
Vanguard REITReal EstateVNQ10%0.100.010
Vanguard Total Bond MarketBondBND10%0.100.010
Total100%0.143
Average Expense Ratio

I know that there's no perfect portfolio for everyone. We all have different risk tolerances. Someone older would probably want more bonds and fewer stocks. That said, here's a brief explanation of why I went with the above assets and percentages.

I wanted to invest equally in United States and international companies. I think it is a little self-centered to invest a huge amount in your own country, because a bad economy will doom you twice: poor local job prospects and a crashing stock market. However, the United States has many companies that do business globally... in some ways there is an international component to the US-based companies.

Within the US companies, I wanted to put more money towards small capital stocks. I've read in numerous places, that over the long term they've performed better... with small cap value doing particularly well. Also, it looks like 70+% of VTI is in large capital companies. The Small-Caps balance that out.

On the international side, I went with three funds. The Vanguard Total International Stock is a bit like Vanguard Total Stock Market in that it doesn't really reach everything very well. A quick look shows that around 65% of it is in Europe and Japan and 80+% are large companies. Vanguard Emerging Markets helps diversify to smaller countries. Finally, I put a small amount into frontier markets because I like them for the reasons outlined here.

The end result of the above is 80% in stock markets. I still young (at least people tell me that), and I'm an aggressive investor. I'm also looking at doing this with money that I don't plan to touch for 30 years. This gives me the ability to take a little more risk to get higher returns. I may invest my 2 year old's money in it, so again, aggressive is good.

The last 20% is divided evenly into real estate and bonds. These are not correlated with the stock market, so it gives me a little diversity. I thought long about putting a commodity ETF in there, but they haven't performed as well I hoped. I didn't find a commodity ETF that I was particularly enamored with.

While on the topic of being enamored with ETFs, you may have noticed that whenever possible I went with Vanguard ETFs. They are well known for keeping their expenses really low. This way more of my investment goes towards the investment, not the managers of the investment. There might be one or two stocks with lower expense ratios, but that gets to be a little like chasing pennies. As you can see my effective expense ratio (minus the $9.99 Motif Investing commission) is 0.143, which means that I am paying $14.30 in expenses for every $10,000 I invest.

One can make an argument that I should take the iShares MSCI Frontier 100 out. It has, by far, the highest expenses. If I left it out, it would lower my expense to $10.40 in expenses for every $10,000 I invest. Is it worth it? Maybe, since it is a small part of the portfolio and a pretty non-traditional investment to begin with.

What else should I look into with here? In some ways, I'm already stretching the limit of "Lazy" by having eight stocks in a Lazy Portfolio. However, I've got room for 22 more in my Motif, if I want to get more detailed. Should replace some of the US large capital with some US mid-caps? Should I go into a global real estate fund like I had mentioned back in 2007? What would the expense ratio ramifications be of that? Should I look into adding BRICs in my international allocation? What about an international bond fund?

So many questions. Hit me up in the comments with your answers.

Last updated on September 23, 2014.

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3 Responses to “A Lazy Portfolio (Bought on the Cheap)”

  1. Or, you could simply open an account with Vanguard, and they charge you no commissions for their ETFs, and $7 for other stocks/ETFs.

    I think MOTIF’s would work bestest for people who are trying to buy their own customized basket of individual securities.

    Longer term I am hopeful commissions drop even further.

    • Lazy Man says:

      I didn’t realize that Vanguard didn’t charge commissions on their own funds. I guess maybe the Frontier Market fund and anything else like that might be reasons to go with Motif instead. When I started the exercise, I hadn’t thought I was going to stay within the Vanguard family of funds.

      It also looks like you might have to have $3,000 minimum, unless I’m reading something wrong. That would eliminate it for my son’s baby money.

  2. This is a nice breakdown. Those i shares always confuse me.

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