In this hard working life of mine, I have found that time is valuable. We all want to make time for family, friends, and even fun experiences. The problem is that we also need to invest for our future. Creating portfolios for our future can often be hard, laborsome, and difficult. Let me show you how to build wealth with lazy portfolios.
What is a lazy portfolio?
A lazy portfolio is any portfolio that requires a collection of investments with little maintenance. Basically, it is an easy set-up portfolio that you just let go and forget about it. You set it up and let it do its thing.
Is there such a thing? Absolutely! Often people talk about a couch potato portfolio.
A couch potato portfolio is a portfolio that holds 50% of stocks and 50% of fixed income like bonds.
At the end of the year, you take an hour to make adjustments to it. You can either sell some stocks to put more into bonds or vice versa. Your allocation is basically 50/50. So easy, you can just sit on a couch and let it do its thing.
The easy way to set this up is to have index funds or their ETFs( Exchange Traded Funds) like VTI or VOO. Let’s make a portfolio using the ETFs of the index fund.
(Throughout my examples, I will be using Vanguard Funds. I really like them and they have a low expense ratio that saves us money.)
50% will be in VTI, which is a total stock market index fund ETF from Vanguard
50% will be in BND, which is a total bond market index fund ETF from Vanguard.
The next step is to let them grow, and automate the investments if you can. Easy.
This is a classic example of a couch potato lazy portfolio. Many other portfolios have come into the fold, and I am here to show you how they look.
Each of these are simple ways to build wealth with lazy portfolios.
The 2-Fund Portfolio
Rick Ferri has made this suggestion. If you do not know Rick Ferri, that is ok. He is a famous CFA that helped come up with a few lazy portfolios.
His 2-Fund Portfolio is one that is split with a Total World Index Fund and a Total Bond Index Fund.
60% VT (Vanguard’s Total World Index Fund ETF)
40% BND (Vanguard’s Total Bond Index Fund ETF)
With this exposure, you will have exposure to the top companies in all of the world. This will be a very diversified portfolio.
There will also be exposure to bonds that will help with any fluctuations within the market.
If you want to be simplistic, you cannot get any simpler than this. It is easy, you can create a nice portfolio, automate it, and let it run. It is like the couch potato portfolio, but it has a bit more exposure to the stock market at 60%.
This is just the tip of the iceberg.
You can forget about the world total stock market and just focus on the U.S. Stock market with VTI, which is the total U.S. stock market index fund ETF.
JL Collins, from The Simple Path to Wealth, has a portfolio with about 75% of VTSAX (Total Stock Market Index Fund), and he has about 25% into bonds. That is another option if you would like to be more exposed to the U.S. stock market.
There are many variations for 2-Fund portfolios. Just pick two funds and roll with it.
The 3-Fund Portfolio:
Taylor Larimore wrote a book called The Bogleheads Guide to the Three Fund portfolio. In it he breaks down a 3-Fund portfolio. This is another way you can build wealth with lazy portfolios. Making it three funds instead of two.
In this portfolio, it breaks down the 2-Fund portfolio a little bit further.
Stocks are still at 60%, and bonds will stay at 40%.
The 3-Fund Portfolio
18% VXUS (Total International Index Fund ETF)
In this 3-Fund portfolio, Larimore breaks down the stock portion of the portfolio into two funds. One that follows the U.S. total stock market, and the other that follows the Total International stock market. He does this to give more exposure to the U.S. market in general.
As an American, I believe in the many different companies in the U.S. to thrive. I believe that as well of many other countries, but with the largest GDP in the world the U.S. market will be one of the strongest. I am a bit biased.
Having a larger exposure to the U.S. market makes sense in these terms. Some of the largest companies in the World are housed in the U.S. like Apple. Plus with VTI, there is an exposure to around 3500 different companies.
VXUS gives exposure to the other international companies. There are around 7000 different companies that it gives exposure to, and therefore it will have a great benefit giving diversification within your portfolio with the international stocks added into it.
I am a huge fan of the 3-Fund portfolio. Mine is in a different allocation than Larimore suggests.
Invest Simply with M1 Finance. You can easily set up a 3-Fund portfolio and automate everything. Make life simpler.
The Frugal Expat 3-Fund Portfolio
I am a young individual with lots of room to grow within my portfolio. Right now, I am in the accumulation phase of wealth.
There is no need to be over exposed to bonds right now. I like to have most of my money in the Total U.S. stock market index fund to have great exposure to all the companies operating in the U.S.
I do add in VXUS to have exposure to other companies like Samsung, TSMC, and Toyota plus many other great international companies.
Right now, I am all about growth.
What about REITs in a Portfolio?
Do REITs belong in a portfolio?
That is a great question. If you do not know what a REIT is, let me explain. A REIT is a real estate investment trust.
They are the big companies that like to own many different parts of real estate. There are REITs that own lots of shopping malls like Simon.
REITs give you exposure to real estate without purchasing real estate yourself. You allow the company to do it, and they reward you with some good dividends.
If you want some exposure to a REIT, you can form a 4-Fund Portfolio.
The 4-Fund portfolio:
The 4-Fund portfolio just adds an index fund of REITs to get a broad exposure of the REITs.
10%: VNQ (Total market REIT index fund ETF)
Here is an example of a 4-Fund portfolio. This in turn gives you many ways to have exposure to income. It is a great way to build wealth with this lazy portfolio.
Automation is Key.
With these portfolios automation is key.
Automation helps with any portfolio, but being able to automate investments gives you an easier time to focus on other things. This allows your investment portfolio to be passively managed.
To build wealth with lazy portfolios is all about keeping things simple.
One way to automate a lot of these things, is to have money taken out of your account every month that is put straight into your portfolio.
An easy app that you could use is M1 Finance. I am a huge fan of Vanguard, but M1 Finance gives you the ability to set-up a pie for your portfolio. It is a great brokerage account that you can invest in, and it helps with rebalancing your portfolio as well.
If you want a 3-Fund portfolio, you can pick those three funds, designate your asset mix, and automate it.
A few clicks and you are done.
Lazy Portfolios for the win
One thing as an investor, you should strive to buy and hold as your investment strategy. You buy the assets and hold them for a long time. A lazy portfolio can help you achieve these results.
This is not a get-rich-quick scheme at all. It is just a way to build wealth with lazy portfolios.
I am all about keeping things simple. With investing, the best strategy is a KISS Strategy to investing. Keep it simple stupid.
These are just some classic examples of lazy portfolios. I hope that you can make one keep your investment on track.
Let me know how you would create a lazy portfolio.
” Spend less than you make, stay out of debt, and invest the rest”
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
7 thoughts on “It is time to build wealth with lazy portfolios.”
Hi Steve, I’m back haha:)
This is a serious question that a friend of mine brought to me yesterday, actually myself also had been thinking about that for quite some time.
Q: If ETF/Index fund are that nice, why doesn’t everyone get in? And what if everyone starts to buy ETF (which is very likely to happen), wouldn’t ETF market get too saturated and thus become less profitable?
He didn’t come up the logic, this is my own thinking. He just said he doesn’t feel safe in buying ETF, cuz too many ppl are doing this, kinda like too good to be truth.
And this is my answer:
The more people buying ETF means the demand soars, which leads to a exponential growth in ETF price, therefore, it’s especially important for us to get in on the ground floor.
What do you think, Steve?
Great question Tommy. I often wonder why not everyone gets in as well. Index Funds makes investing simple.
A lot of people prefer to go with a financial advisor to help them with investments. If they suggest low-cost index funds then why would their clients want to keep paying them fees. All of a sudden their job could become non existent, but not all financial advisors are like this. There are some that will suggest index funds as well.
ETFs are basically like the new kid on the block. It is an easier way to sell mutual funds. There are so many mutual funds out there. They have high expense ratios, and people hope to jump on them in order to make more money. The expense ratios and any other fees is what makes them profitable. So financial instituions will keep creating ETFs to sell to people.
Index Funds were created by John Bogle to give people a low-cost option that tracks an index. It is passive. This is not actively managed so there is a low cost. When Warren Buffet says when he dies to put 90% of his money in VFINX/VOO and 10% into bonds for his wife then he believes in it too. He did make a $1 million bet to show a low-cost index fund could beat a Hedge fund manager, and he won. Now you have Index funds as ETFs. They are just easier for some folks and they are still low cost as well. VTI costs 0.03% so like $3 for every $10,000 invested.
You are right! If more people buy it then growth will happen. It is like Tesla. Everyone wanted Tesla in 2020, and the price soared.
Thank you for your question
The expense ratios and any other fees is what makes them(mutual funds with high expense ratios) profitable. So financial instituions will keep creating ETFs(Of these mutual funds) to sell to people.
Is my understanding correct?
Yes that is correct.
I love this article! Lazy portfolios are a super great way for new investors to get into the market. Easy to understand, and built for the long-term.
Thanks for sharing!
It is great for new investors. It helps them make investing simple and easier for them to start.
I am glad you liked the post.
Lazy portfolios, means be at rest portfolios. Cool article.