Expanding the Triumph of Sloth

It pays to be a lazy investor.

I did not come to this conclusion happily. The grim truth is that lazy investing requires me to work harder as a journalist. And when it comes to work, I would rather have lunch.

Allow me to explain.

When I wrote my column from Boston in the late 1970s, nothing made life easier than going to lunch with a fund manager. I asked questions, usually over a good steak at a nice restaurant.  I dutifully reported the manager’s account of how brilliant strategy resulted in superior performance. The top gun managers spoke in good quote, sometimes with a touch of humor. The less stellar managers were never allowed to see the light of day, let alone talk with a journalist. And there was a constant supply of new stellar managers, so I never lacked for subject matter.

Life was good.

Unfortunately, I began to notice that most stellar managers were only that for a short time. They had their 15 minutes of fame and superior performance. Then they sank into obscurity, often richly deserved. Few reigned long enough to merit a second lunch. I saw that only a fraction of fund managers beat the index they were supposed to trounce.

There were just a handful of index mutual funds in the late 1970s so there wasn’t much I could do with this grim knowledge. Like it or not, investors had to choose between managers who were supposed to be superior, but usually weren’t.

Today things are different.

I’ve been able to write about low-cost index fund portfolios for many years. And it keeps getting better. Expenses continue to decline. The number of index funds continues to increase. Today a do-it-yourself investor can easily build a well-diversified portfolio with very low costs. With truly minimal effort anyone with a pulse can beat the majority of professional managers. You can do it with my Couch Potato Building Block portfolios. You can also do it with other lazy portfolios.

And there are quite a few.

So now, in addition to monthly updates of the trailing performance figures for the Couch Potato Building Block portfolios on my website (www.assetbuilder.com) , you can also find trailing performance figures for other lazy portfolios— such as William Bernstein’s Coward’s Portfolio, Andrew Tobias’ Lazy Portfolio, the Yale Model portfolio, the Coffeehouse portfolios— altogether, a total of 29 lazy investor portfolios. And more to come.

In addition to trailing performance figures, you’ll be able to see the funds that make up each lazy portfolio, the percentage allocated to each fund, etc. If you want to build one of these low-cost and lazy portfolios, all the information you need is in one place.

Over the last five years, for instance, the average annualized return of the 12 lazy portfolios that Morningstar would call moderate allocation was 4.25 percent. The top performance in the group was 5.1 percent. The lowest performance was 3.1 percent.

The average performance of the 222 managed moderate allocation funds with 5 year track records was a meager 2.54 percent. The best performing lazy portfolio would have ranked in the top 4 percent of the category. The worst lazy portfolio would have ranked in the top 36 percent of the category. The 4.25 percent average performance would have ranked in the top 12 percent.

So if you build a lazy portfolio, odds are you’ll do better than a more expensive but professionally managed portfolio.

Comparing Lazy Portfolios with Managed Portfolios

Portfolio Percent Equity 5 Year Annual Compound Return
Ultimate Buy and Hold 60 5.10
Couch Potato Six Ways 67 4.89
Couch Potato Five Way 60 4.72
Aranson Family Taxable 70 4.59
Yale Model 70 4.59
Frank Armstrong Ideal Index 70 4.44
Coward's Portfolio 60 4.23
Couch Potato Margarita 67 4.01
Andrew Tobias Lazy 67 4.01
Coffee House ETF 60 3.84
Coffeehouse 3 ETF 67 3.45
Coffeehouse Vanguard 60 3.11
Average Moderate Allocation 60 2.54
Largest Moderate AllocationAvg. 63 3.47

Things don’t get much better if we compare lazy portfolio performance to the largest and most successful of the managed moderate allocation funds. The top 25 in assets, for instance, range from PIMCO All Asset Institutional fund (ticker: PAAIX) at 6.08 percent to the 0.50 percent of Vanguard Asset Allocation (ticker: VAAPX). The group averaged a return of 3.47 percent.

As always, while it is possible to do better with a managed fund, it isn’t probable.