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The best lazy investing portfolio is one that matches your risk tolerance and is rebalanced regularly. There isn’t a single correct approach to investing—many strategies exist—but a simple, low-cost, diversified portfolio of index funds often outperforms more complex active strategies over the long term. Well-regarded researchers and investors, including Warren Buffett, have endorsed passive approaches.
After years of picking individual stocks, I switched to passive investing when research showed that most stock pickers and even many star managers rarely sustain outperformance. Today, computerized trading makes it even harder for individual stock pickers to beat broad market returns. I still own a few individual stocks, but most of my family’s portfolio is in low-cost index mutual funds and ETFs.
A lazy portfolio typically uses a small number of low-fee index funds that track broad market indices, such as:
– S&P 500: 500 large U.S. companies weighted by market cap.
– Russell 3000: a total U.S. stock market index covering the largest 3,000 stocks.
– Nasdaq 100: 100 large Nasdaq-listed companies, many in technology.
– Bloomberg Barclays U.S. Aggregate Bond Index: a diversified broad bond index.
Using broad, low-cost funds keeps expenses down so more of your money stays invested. The goal is to buy a mix of stock and bond funds in proportions that fit your goals and risk tolerance, then rebalance periodically to restore those target percentages.
Rebalancing means selling portions of assets that have grown beyond your target allocation and buying those that have fallen behind. For example, if your target is 70% stocks and 30% bonds but market moves shift your holdings to 65% stocks and 35% bonds, you’d sell bonds and buy stocks to return to 70/30.
Performance of a lazy portfolio closely tracks the weighted returns of the funds it contains. If you start the year with $10,000 and end with $11,000, your return was 10%. To calculate a multi-fund portfolio’s return, multiply each fund’s return by its allocation and add the results to get the total portfolio return.
Simple lazy-portfolio ideas:
– Two-fund approach: one global stock fund covering world markets plus one bond index fund. Adjust the stock/bond split to match your risk tolerance.
– Four-fund approach (advocated by William Bernstein): limit bonds to about 25% and divide the remaining 75% equally among a broad U.S. stock index, an international equity index, and a U.S. small-cap index. This captures potential small-cap and value premiums while maintaining diversification.
Many investors tailor allocations as they near retirement, shifting toward capital preservation by increasing fixed-income holdings. Other common elements to consider include international exposure (the U.S. is a portion of global markets), small-cap/value exposure for potential long-term gains, and a real estate allocation for diversification.
If you prefer a hands-off solution, target-date funds or platforms that offer automated rebalancing can simplify implementation. Some robo-advisors and brokerage platforms let you choose a risk level and handle rebalancing and fund selection for you.
There’s no single “best” lazy portfolio for everyone. The right one aligns with your financial goals, timeline, and tolerance for risk. Set your allocation, rebalance regularly—typically once a year—and focus on the long term while continuing to learn basic investing principles.
