8 Lazy ETF Portfolios
I’m a firm believer that investing doesn’t
have to be complicated and that it doesn’t
have to require a great deal of ongoing effort. In that vein, I’m always
drawn to “lazy portfolios.” The following are ETF renditions of some of the
most popular lazy portfolios.
Most of them could be done just as well
using regular Vanguard index funds. The ETF versions simply allow you to
implement the portfolios at your brokerage firm of choice. (See here
for more about ETFs as compared to index funds.)
1. Allan Roth’s Second
Grader Portfolio
- 60% Vanguard Total Stock Market ETF (VTI)
- 30% Vanguard Total International Stock ETF (VXUS)
- 10% Vanguard Total Bond Market ETF (BND)
The asset allocation between the funds is
clearly intended for a younger, more aggressive investor. But Roth’s idea of
keeping it simple applies to everyone. Even for investors close to (or in)
retirement, these three ETFs should get the job done.
2. David Swenson’s Ivy
League Portfolio
- 30% Vanguard Total Stock Market ETF (VTI)
- 5% Vanguard Emerging Mkts ETF (VWO)
- 15% Vanguard Europe Pacific ETF (VEA)
- 20% Vanguard REIT ETF (VNQ)
- 15% Vanguard Intermediate-Term Government Bond ETF (VGIT)
- 15% iShares Barclays TIPS Bond (TIP)
David Swenson, the Chief Investment Officer
at Yale University, recommends the above portfolio (a 70/30 stock/bond
allocation) in his Unconventional
Success. He is a big proponent of equity-oriented allocations for
investors with long time horizons.
3. Rick Ferri’s Core
Four Portfolio
- 36% Vanguard Total Stock Market ETF (VTI)
- 18% Vanguard Total International Stock ETF (VXUS)
- 6% Vanguard REIT ETF (VNQ)
- 40% Vanguard Total Bond Market ETF (BND)
“You only need a few asset classes in your
portfolio, and after that there are diminishing returns. The mutual funds you
choose to represent those asset classes should be the lowest cost funds you can
buy.” –Rick Ferri, CFA on the Bogleheads
Forum
4. Bill Schultheis’ Coffeehouse Portfolio
- 10% Vanguard S&P 500 Index ETF (VOO)
- 10% Vanguard Value ETF (VTV)
- 10% Vanguard Small-Cap ETF (VB)
- 10% Vanguard Small-Cap Value ETF (VBR)
- 10% Vanguard Total International Stock ETF (VXUS)
- 10% Vanguard REIT ETF (VNQ)
- 40% Vanguard Total Bond Market ETF (BND)
The title of Bill’s book, “The New
Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with
Your Life” is spot on. The above portfolio is intended to be rebalanced
once per year and otherwise left alone. Sounds good to me.
5. Larry Swedroe’s Big
Rocks Portfolio
- 9% Vanguard S&P 500 Index ETF (VOO)
- 9% Vanguard Value ETF (VTV)
- 9% Vanguard Small-Cap ETF (VB)
- 9% Vanguard Small-Cap Value ETF (VBR)
- 6% Vanguard REIT ETF (VNQ)
- 3% Vanguard Total International Stock ETF (VXUS)
- 6% SPDR S&P International Dividend (DWX)
- 3% Vanguard FTSE AW ex-US Sm-Cap ETF (VSS)
- 3% WisdomTree International SmallCap Div (DLS)
- 3% Vanguard Emerging Mkts ETF (VWO)
- 40% Vanguard Short-Term Bond ETF (BSV)
You’ll note that Swedroe’s portfolio is
significantly tilted toward small-cap and value equities (with the reasoning
that their higher risk levels should bring higher expected returns). It’s more
funds than I’d personally like, but Swedroe makes a valid point that if you’re
only rebalancing annually, the additional effort required by having a few more
funds in your portfolio is pretty minor.
6. Harry Browne’s Permanent
Portfolio
- 25% Vanguard S&P 500 Index ETF (VOO)
- 25% Vanguard Long-Term Government Bond ETF (VGLT)
- 25% Cash (i.e., money market funds)
- 25% SPDR Gold Trust ETF (GLD)
The idea behind Browne’s Permanent
Portfolio is that the four asset classes have sufficiently low correlation that
the portfolio should be able to put up modest gains each year under just about
any circumstance imaginable.
7. William Bernstein’s No
Brainer Portfolio
- 25% Vanguard S&P 500 Index ETF (VOO)
- 25% Vanguard Small-Cap ETF (VB)
- 25% Vanguard Total International Stock ETF (VXUS)
- 25% Vanguard Total Bond Market ETF (BND)
Bernstein, author of The
Four Pillars of Investing, suggests the above portfolio for investors
with a long time horizon. Note that it’s very similar to the first portfolio
mentioned above (Roth’s Second Grader Portfolio), but with a much heavier
allocation toward small-cap domestic stocks.
8. Harry Markowitz’s “Father
of Modern Portfolio Theory” Portfolio
- 50% Vanguard Total World Stock ETF (VT)
- 50% Vanguard Total Bond Market ETF (BND)
Harry Markowitz–Nobel
Prize winner and originator of Modern Portfolio Theory–when asked about his
personal portfolio once replied, “I should have computed the historical
co-variances of the asset classes and drawn an efficient frontier…Instead, I
split my contributions 50/50 between bonds and equities.” The above portfolio
is a somewhat tongue-in-cheek implementation of Markowitz’s approach.
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