The Lazy Portfolio

A lazy portfolio is a type of investment portfolio that is designed to require minimal effort and maintenance while still providing decent returns over the long term. The idea behind a lazy portfolio is to create a diversified portfolio of low-cost index funds or exchange-traded funds (ETFs) that provide exposure to a broad range of asset classes, such as stocks, bonds, and real estate, with the aim of minimizing risk and maximizing returns.

A lazy portfolio is typically a set-it-and-forget-it investment strategy, where the investor rebalances the portfolio periodically (usually annually or less frequently) to maintain the desired asset allocation. The portfolio is typically designed with a mix of asset classes that aligns with the investor's risk tolerance and investment goals.

One popular example of a lazy portfolio is the "three-fund portfolio," which consists of three low-cost index funds that provide exposure to the total US stock market, total international stock market, and total US bond market. Another example is the "coffeehouse portfolio," which is a combination of index funds and bonds that provides a mix of income and growth. You can learn more in the book “The Bogleheads’ Guide to Investing” by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf.

Here is an illusion of the three-fund lazy portfolio. Imaged sourced from here.

Lazy portfolios can be a good option for investors who want a simple, low-cost investment strategy that requires minimal effort and provides diversification. However, investors should still carefully consider their risk tolerance and investment goals when selecting a lazy portfolio strategy. The performance of a lazy portfolio strategy can vary depending on the specific portfolio construction, asset allocation, and market conditions. However, in general, studies have shown that a well-diversified, low-cost portfolio of index funds or ETFs can outperform more actively managed portfolios over the long term. For example, according to a study by Vanguard, over a 15-year period from 2002 to 2016, a portfolio consisting of 60% stocks and 40% bonds had an average annual return of 6.6%. This is comparable to the returns of actively managed funds, but with significantly lower expenses due to the use of low-cost index funds.

Additionally, a lazy portfolio can be a good way to achieve consistent returns without having to constantly monitor and adjust investments. By maintaining a long-term investment strategy and resisting the temptation to make frequent trades based on short-term market fluctuations, investors can avoid costly mistakes and achieve better returns over time. However, it is important to note that past performance is not necessarily indicative of future results, and investors should carefully consider their own financial goals, risk tolerance, and investment horizon before deciding on a particular investment strategy.

In conclusion, a lazy portfolio is a low-cost, diversified investment strategy that can provide good returns over the long term while requiring minimal effort and maintenance. By investing in a mix of low-cost index funds or ETFs that provide exposure to a broad range of asset classes, investors can reduce risk and achieve consistent returns without having to actively manage their investments. The simplicity and ease of a lazy portfolio make it an attractive option for many investors, especially those who are just starting to invest or who want to take a hands-off approach to their investments. Overall, a well-constructed lazy portfolio can be an effective way to build wealth over time and achieve financial goals.

Here is a link for more information about the lazy portfolios: https://www.bogleheads.org/wiki/Lazy_portfolios