By John Wasik
CHICAGO, April 8 I have always found that
laziness is a virtue when it comes to managing my own money. The
less I trade, the better my performance.
Years ago, in an attempt to come up with a hypothetical
portfolio that provided low-cost diversification, I created what
I called a "Nano" - small and compact - portfolio as a
investment strategy intended to capture returns from the U.S.
and global stock, bond and real estate markets. Lazy portfolios
are generally passive and rebalanced once a year. The idea is to
set the allocations and leave them alone - not try to time the
Thanks to MyPlanIQ.com, a useful website that creates and
monitors portfolios (I have no connection to it), I have been
able to track the performance of my virtual Nano holdings over
time. My set-up has done reasonably well, but as with all
portfolios, results depend on the period being looked at and on
performance relative to the market as a whole.
To see my portfolio on MyPlanIQ, click on
MyPlanIQ updates me once a year on how the portfolio has
done relative to other lazy portfolios that it tracks. This
year, I was pleasantly surprised to see that my three-year
average return through March 29 is in third place behind a
portfolio put together by William Bernstein, an investment
adviser, neurologist and author of such books as "The Four
Pillars of Investing," and one by David Swensen, the manager of
Yale University's endowment. Since I admire both men, esteemed
professional money managers, I'm humbled to be in their company.
My Nano portfolio returned 9.7 percent annually in the
three-year period. That compares with 12.1 percent for
Bernstein's "No Brainer Four Fund Portfolio" and 11.3 percent
for Swensen's "Yale Individual Investor Portfolio."
Note that no lazy portfolio, including mine, can match an
investment that tracks a hot stock market's total gains. For
instance, if you invested instead in a single, big-stock index
fund such as the Vanguard 500 Index Fund, you beat my
Nano portfolio by at least three percentage points over the
three-year period through April 5; the Vanguard fund was up 13.4
But note that if you go instead with a strategy like that,
you also take on all of its downside risk.
While I'm hardly equating my money-management skills with
those of pros like Bernstein and Swensen, my aim is to offer a
bare-bones, moderately risky portfolio that you can rebalance to
the original allocation once a year if the losses or gains throw
the mix out of whack. I picked only five funds, with a 20
percent allocation each, for my Nano portfolio. Their annual
returns through March 30 were:
Vanguard Total Stock Market ETF, 14.5 percent
Vanguard Total International Fund, 8.5 percent
Vanguard REIT, 15 percent
iShares Lehman TIPS Bond, 5.4 percent
iShares Lehman Aggregate Bond, 3.7 percent
I picked these funds because they represent the lion's share
of the global stock market, U.S. bonds, inflation-protected
securities (TIPS) and commercial real estate. When stocks go
south, my 40 percent allocation in bonds provides a cushion.
During a stock market rally, I get a broad sampling of U.S. and
global stocks. When interest rates rise, my TIPS will perform
better because they are indexed to inflation and can offset
bond-price losses. I own several of the above funds in my
Because I've designed this portfolio to temper risk, it
won't reflect overall performance of U.S. stocks, nor will it
capture outsized returns from emerging markets, commodities or
other alternative investments. It's a bread-and-butter approach
that will still get hurt when stocks tank, although it won't
suffer as much as an all-stock portfolio.
The volatility of My Nano portfolio is lower than that of
big U.S. stocks, which means that I'm taking a lot less stock
market risk. With this portfolio, you're not likely to see
returns fluctuate as much as they do in a pure-stock portfolio.
Since one of the reasons for creating my portfolio was to
provide respectable risk-adjusted returns, I'm happy to say that
its volatility rating - standard deviation - was the best of the
three top-performing lazy portfolios. Ideally, prudent
investing matches the best-possible returns with the
lowest-possible risk for investors like me. We're always trying
to get that risk-return trade-off working in our favor.
But no off-the-shelf portfolio can fit everyone's needs. If
you want a higher global-stock allocation, then I suggest
Swensen's portfolio (), which has
a 20 percent allocation in global stocks. If you're seeking more
of a small-company stake, then Bernstein is your man
(), with a 25 percent allocation
in small companies.
Still, it's the philosophy of my approach - risk management
over returns - that I think matters most. I ground my teeth and
stayed in the stock market during 2008, yet benefited from the
rebound that began in 2009. Buy-and-hold still makes sense to
me because I'm incompetent when it comes to timing market
The real beauty of a lazy portfolio is that it can capture
nearly all of the returns of most any market at very little
cost. If you haven't been offered the opportunity to build
something similar within your 401(k) or other retirement plans,
ask for it. The process could make your life simpler, build your
nest egg and reduce your anxiety level exponentially.