Tuesday, March 4, 2008

Use Lazy Portfolios for Long-Term Investing

I’m a fan of using a lazy portfolio strategy for long-term investments. A lazy portfolio consists of diversified, low-cost, no-load index funds or exchange-traded funds. Lazy portfolios implement the buy-and-hold strategy with occasional rebalancing. I finally became a convert after reading the excellent work by Charles Kirk. I recommend all my readers spend quality time reading his blog.

My lazy portfolio currently consists of:
45% Vanguard Total Stock Market Index (VTSMX)
45% Vanguard Total International Stock Market Index (VGTSX)
10% Vanguard Total Bond Market Index (VBMFX)

If you don’t believe me, perhaps you will take advice from Warren Buffet's annual letter to Berkshire Hathaway shareholders.

“Naturally, everyone expects to be above average. And those helpers – bless their hearts – will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group – the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the “know-nothings” – must win”.
- Warren Buffet
I’m convinced almost every investor should fire their highly commissioned financial advisers and brokers and implement a passive lazy portfolio instead.


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The articles on Daily Money Tips reflect the opinion of its author only and should not be considered professional financial advice. Please consult a financial professional before making any major financial decisions.