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Lazy Portfolios – What Are They And How To Build One?

Lazy portfolios are bundles of investments that you make once and let sit. Why is this no-effort strategy so profitable and how can you build one yourself? Let me explain.
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The other day, a dear friend of mine in her mid-20s told me she was saving up to buy a house in her 30s.

Her plan for amassing a down payment was to simply make a big withdrawal from her 401(k) when the time was right.

When I reminded her that the combined taxes and penalties could be as much as 30% (meaning she’d lose $15,000 out of a $50,000 withdrawal), she frowned.

“Well, I can’t just put the money in a savings account. Interest rates suck these days – the highest I’ve seen is 1%, and that doesn’t even cover inflation!”

She had a point. So why not invest the money, I asked?

“Well, I don’t know much about stocks, I don’t have the patience for real estate, and crypto scares me.”

That’s when I told her she was the perfect candidate for a lazy portfolio.

“A what? Look, buster…”

Once I backpedaled and explained the concept, she understood that I wasn’t calling her a bum, but rather, keying her into a lesser-known but highly effective investment strategy.

In this piece, I’m going to clue you in, too!

What is a “lazy portfolio”?

Lazy Portfolios - What Are They And Should You Open One? - What is a "lazy portfolio"?

A lazy portfolio is a bundle of stock market investments that requires little to no active maintenance by you. They’re most commonly made up of between one and five index funds, which are like big bundles of stocks, bonds, and other investments that you can buy just like shares of a regular stock (more on those later).

Aside from the occasional deposit or gentle asset reallocation, lazy portfolios don’t require any work. 

You can buy $5,000 or $10,000 worth of index funds today and literally do nothing but watch them for 10 years. Doing this means you’ll have a successful lazy portfolio that will, hopefully, generate good rates of return.

But wait – don’t you have to be constantly buying and selling stocks to make money in the stock market?

Not at all – in fact, it’s better if you don’t. Unlike with day trading, you don’t mess with your lazy portfolio – through thick and thin, you let it sit and generate compound interest for years.

You can think of a lazy portfolio like a baby 401(k) that you design yourself and withdraw from much earlier.

Here’s why being “lazy” is a good thing

I love the movie The Wolf of Wall Street and the investing madhouse r/WallStreetBets, but both entities continue to perpetuate a common myth about the stock market: that you need to day trade to make money.

Nothing could be further from the truth.

In truth, multiple academic studies have found that the overwhelming majority of retail investors end up losing money.

“Don’t be misled with false claims of easy profits from day trading,” Burton Malkiel, Princeton professor and Chief Investment Officer of Wealthfront, told CNBC.

The harsh reality of investing in the stock market is that unless you’re a highly trained wealth manager with decades of experience and a team of analysts, you’re probably going to lose money day trading (and even they tend to struggle to pick winning stocks).

That’s why it’s better not to day trade, and be lazy instead. Rather than researching, buying, and selling stocks every day for the next 10 years, you’ll be better off buying index funds in the next 30 minutes and going about your day (or decade).

What are lazy portfolios made up of?

Lazy Portfolios - What Are They And Should You Open One? - What are lazy portfolios made up of?

Lazy portfolios are most commonly made up of a small mix of index funds. Here’s a breakdown of what those are and why they’re so effective for passive investing.

Index funds: the building block of lazy portfolios

Index funds are a form of ETF, or exchange-traded fund, which are like big bundles of stock and other investable assets. When you buy shares of an ETF, you’re effectively buying up shares of dozens or hundreds of companies at once.

Each ETF must be individually approved by the SEC and have an appealing “theme” to it. For example, there are blockchain ETFs; ETFs that track the oil industry; and even quirky, unique ETFs that contain shares of companies trying to appeal to Millennials.

So, while stocks let you invest in a company, ETFs let you invest in an entire industry, concept, or strategy.

Now, what makes index funds as unique as ETFs is that they’re designed to reflect the performance of an entire market index, such as the S&P 500 or the U.S. bond market. To illustrate, here are two of the most popular index funds for building lazy portfolios:

  • The Vanguard Total Bond Market Index Fund (BND), which reflects the performance of the total U.S. bond market.
  • The Vanguard Total Stock Market ETF (VTI), which, big surprise, reflects the performance of the overall stock market.

So by buying shares of VTI and BND, you’re essentially investing in “the stock market” and “the bond market.” I know – the idea of investing in the whole stock market all at once sounds meta and maybe a little ridiculous, but bear with me.

Index funds are extremely popular for one simple reason

If you’re new to the stock market, you should know that pretty much every investor dabbles in index funds. Everyone from Warren Buffet to your grandparents has a stake in them – in fact, here’s how Mr. Buffet himself feels about index funds:

“In my view, for most people, the best thing to do is owning the S&P 500 index fund,” he told CNBC.

Index funds are popular among amateurs and pros alike for one simple reason: they reliably produce around 3% to 10% APY year after year. Index funds that track the S&P 500 are particularly high-performing, which is why many actively-managed mutual funds will say they “beat the S&P 500” as a benchmark for success.

Between 3% and 10% APY may not sound like a ton of interest but lemme tell ya, it’s plenty. Compound interest is a powerful ally, after all. Take a look at MU30’s Compound Interest calculator below to get a sense for yourself:





So to illustrate, let’s take a look at what happens if you opened a “one-fund lazy portfolio” today by buying $10,000 shares of the Vanguard S&P 500 ETF (VOO).

How much money would your lazy portfolio be worth in 10 years?

Lazy Portfolios - What Are They And Should You Open One? - 10-year performance

The answer is about $40,000. As I said, it literally pays to be lazy!

Now, most investors choose to put multiple index funds in their lazy portfolios for added diversity, but even one-fund lazy portfolios like 100% VOO are common and highly effective (clearly).

Why index funds are better than mutual funds or robo-advisors for building lazy portfolios

To start, mutual funds and robo-advisors are both excellent tools for smart investing. I’m not knocking them, but there’s a reason many investors don’t use them for lazy portfolios.

For the uninitiated, <a

About the author

Chris Butsch

Chris helps people build better lives through financial literacy. He has contributed to USA TODAY, Forbes and has worked as a senior contributor here on Money Under 30. He has covered topics such as taxes, credit card, investing, retirement, and more with a focus on helping Gen Z master personal finance.