Investing can seem very complex if you are new to it. There are so many options out there. How is one to choose between stocks, mutual funds, CDs, corporate bonds, treasury bonds, savings accounts, and even more exotic options like lending on Prosper. With all this complexity it may be worth simplifying things dramatically. Here’s my idea of a simplified or lazy portfolio.
The first step to my plan is to get a Zecco account. I choose Zecco simply because they charge no commissions to buy exchange traded funds (ETFs). That means, that’s you can re-balance and add to your portfolio each week without incurring huge costs.
What does this lazy portfolio look like? It splits 100% of your money equally into the following ETFs:
- 25% – Total Stock Market Index (Ticker: VTI) – This ETF tracks the performance of many US stocks. It’s a great way to diversify yourself in across large and small, growth and value stocks.
- 25% – Vanguard All-World Ex-US fund (Ticker: VEU) – This invests in the many stocks all outside of the United States. I believe you shouldn’t put your eggs in one basket and I consider the US one basket. This reduces currency risk and mitigates against some of the problems that pop up from time to time, like the sub-prime lending one that we are in now.
- 25% – First Trust Global Real Estate Index Fund (Ticker: FFR) (Ticker: FFR) – This invests in real estate around the world. While it does hold a fair share of US real estate, over 60% is outside of the US (hat tip to Sun’s Financial Diary for the help on this one.) This is a great hedge when all the stock markets aren’t performing.
- 25% – Vanguard Total Bond Fund (Ticker BND) – This tracks the performance of a huge number of bonds. Bonds can be a little risky if bought individually, but in a fund such as this, that risk is reduced with the many holdings. Bonds also move independently of stocks and real estate, so if either of those two areas are doing poorly, bonds may stabilize your portfolio.
You won’t get rich overnight investing in this allocation. However, since it covers so many areas, you’ll likely find that you sleep well each night.[Please note that like all my writing, it does not constitute financial advice. I’m simply sharing ideas that I have. Please check with your financial advisor before following through on these ideas.]
I realize that’s a lazy portfolio, but isn’t it bit too heavily weighted to REITS and bonds for most people? I’d bump the All World and total Stock Market to 35% a piece, and then put 20% REIT, and 10% Bond as an allocation.
Lazy Man says
Dong, you might be right. I was going with the ultimate in Lazy (all equal parts, so you don’t need to do math). I also wanted to go more conservative than I would normally invest simply to apply to an even broader audience. Also if stocks all around the world get hit by some huge credit crunch or something similar, 70% of your portfolio isn’t hit, just 50%.
I agree with Dong. This portfolio seems over-allocated for REIT and Bond. I believe you are only in your 30s, so I don’t know if you need that much Bond.
Lazy Man says
This portfolio wasn’t intended for me. It’s just an example of one that I thought might work for a few people who want to own the fewest investments and be the most diversified. I’m in 100% stock at this time. Perhaps when I’m 55-60, I might switch to something this conservative.
Brip Blap says
I don’t know – I’m 30% in bonds and I think that will pay off over time. I think if you rebalance weekly it’s not going to be so lazy – personally I rebalance once a year at most. But I’m in 100% agreement with the general idea. Our investments (my wife’s and mine) are 30/30/30/10 in Vanguard domestic stock index funds, international stock index funds, bond index funds, and “other” – REITs and individual stocks.
I don’t know how conservative bond funds are. The one listed here may be, but a lot can be pretty volatile – and the returns can be pretty solid. What most people don’t realize is that the bond market massively dwarfs the stock market. I work as a consultant for a lot of Fortune 50 (not 500, 50) companies and their bond operations are always far more important than the equity operations. Remember that bonds are not just the vanilla government bonds, etc. There are a lot of higher-return bonds out there that help counter your exposure to the equity markets, which are a little more sensitive to fluctuation in the short term.
But then again I’m somewhat risk averse, so take my opinion with a grain of salt.
Looks like we have the same view in building a simple, “lazy” portfolio :) Several months ago, I was thinking of the smallest number of ETFs I can have to get a most diversified portfolio. The number I came up was 2: one total stocks and one total bonds. However, there’s no a single ETF for the entire stock markets and world bonds. So I settled at 3 funds and they are all here :)
what on earth makes you say that individual bonds can be risky? Unless you are in low grade high risk bonds, they are incredibly not risky.
The downside of bonds is that they are expensive to individually invest in, in that you can’t buy partial shares. That’s the only advantage of bond funds over individual bonds. If you have the funds to buy individual bonds, then you should do so instead of buying bond funds.
Zecco has been recommended to me more than a few times, but I can’t partake – Canadians aren’t allowed to use US brokerages to the best of my knowledge (might be different if you have dual citz.).
I’m not a big bond investor, but do have some in bond funds. I’m still weighing the verdict on ETFs. I think many of them would be easy enough to replicate on your own.
I agree with Pinyo and Lazy Man; I’m going heavier on stocks for a long while. Especially if you’re in dividend growth stocks, which are my favourite.
Brett @ Personal Loan Portfolio says
All the discussion of what percentage should be in each asset class makes some people go into analysis paralysis and select a money market fund.
I recommend that you can be EVEN MORE LAZY — select a single Vanguard Target Retirement Fund. Choose the year you hope to retire and it automatically re-balances periodically based upon the recommended asset allocation for that retirement year.
If I had to select only one investment and I had to keep it until retirement, that is the one that I would select — without a doubt.
Lazy Man says
I don’t like target retirement funds. You usually pay more fees than if you did it yourself. It’s once a year work and something that I don’t think is that bad.
Stocks4 Thelongrun says
What is the goal of this portfolio, who is it designed for, what risk profile and time frame?
Without clarifying the above questions the posting is just another internet noise.
Furthermore, the effort put into the creation of the portfolio is too lazy for my liking — did you check the expense ratio on FFR? 2.63 gross and a net of 0.60 — Lets hope that they do not change their minds on expense waivers.
You may also need to clarify that this portfolio is for a tax advantaged account as the tax ramifications of holding such a large REIT will eat the investor alive.
Maybe its just me but I do not see any laziness in re-balancing each week. A lazy portfolio should be lazy — buy and forgit about it; add some funds when you fell like, rebalance once every couple of years.
Give the damn portfolio time to prove itself and compound for you!
I’m no expert in the area, but when I did a study of the return of all the funds in my 401k plan it seems that bonds might be a safer investment than stocks.