Lazy Portfolios Built with ETFs

Are you familiar with the idea of Lazy Portfolios?

I first read about Lazy Portfolios a few years on MarketWatch and since then have been following them. The idea of Lazy Portfolios is to use low-cost, index mutual funds to build well-diversified portfolios so that you can be “lazy” with your investments, without having to actively manage them. If you want to know more about Lazy Portfolios and how to build one yourself, check out MarketWatch’s article on 6 rules to build your own Lazy Portfolio, which I cite below for your easy reference:

  1. Swing For Singles & Bet on Every Horse
  2. Buy “Quality” and Never Sell
  3. No Market Timing, No Active Trading
  4. Trust the Explosive Power of Compounding
  5. If You’re Not Saving 10%, You’re Spending Too Much
  6. Keep Investing Very Simple, Then Enjoy Doing What You Love

Anyway, I am not going to discuss how to build Lazy Portfolios here. Rather, I am interested in having a portfolio, a Lazy Portfolio, that is built with exchange-traded funds (ETFs), like what I did before with some model portfolios and my own all-ETF virtual portfolio. The reason for me to do this is again an article on MarketWatch yesterday with the title, Lazy Portfolios vote for a winning 2009 by Paul B. Farrell. From there, I went to check out the 2008 returns of Lazy Portfolios to see how they are holding up in a dismal environment where nothing went up.

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Well, don’t expect positive returns from Lazy Portfolios either because it appears that no industrial sector will be in positive territory this year. However, that being the case, all 8 Lazy Portfolio did manage to beat the S&P 500 index so far. Of the 8 portfolios,’s Ultimate Buy & Hold portfolio scored the largest margin of 18%, which is quite impressive (I’d be happy with this kind of result). The Buy & Hold portfolio has 11 funds, all Vanguard mutual funds:

  • Vanguard Intermediate-Term Treasury Fund (VFITX): 20%
  • Vanguard Short-Term Treasury Fund (VFISX): 12%
  • Vanguard International Value Fund (VTRIX): 12%
  • Vanguard Developed Markets Index Fund (VDMIX): 12%
  • Vanguard Inflation-Protected Securities Fund (VIPSX): 8%
  • Vanguard Small-Cap Index Fund (NAESX): 6%
  • Vanguard Small-Cap Value Index Fund (VISVX): 6%
  • Vanguard Value Index Fund (VIVAX): 6%
  • Vanguard 500 Index Fund (VFINX): 6%
  • Vanguard Emerging Markets Stock Index Fund (VEIEX): 6%
  • Vanguard REIT Index Fund (VGSIX): 6%

By looking at the asset allocation of the portfolio, it doesn’t really surprise me why it outperformed the S&P by 18%: 40% of the portfolio’s assets are invested in Treasury securities, the highest among 8 Lazy Portfolios, with three funds: VFITX (YTD return 11.34%), VFISX (YTD return 6.27%) and VIPSX (YTD return -4.14%). On the other hand, the worst performer of the group is the Second Grader’s Starter which consists of three funds and invests only 10% in bonds. But it still edged out the S&P by 3%.

Now I want to see if I can rebuild the Buy & Hold portfolio with ETFs instead. When selecting exchange-traded funds, my first choices are Vanguard ETFs for their low-cost, just like their mutual funds counterparts. However, Vanguard ETFs don’t have the broad coverage as Vanguard mutual funds do, so I have to look elsewhere to get what I need. So after some searching, I came up this list of ETFs for the Buy & Hold portfolio:

  • SPDR Lehman Intermediate Term Treasury (ITE)
  • Vanguard Short-Term Bond (BSV)
  • iShares MSCI EAFE Value Index (EFV)
  • iShares MSCI EAFE Index (EFA)
  • iShares Barclays TIPS Bond (TIP)
  • Vanguard Small-Cap (VB)
  • Vanguard Small-Cap Value (VBR)
  • Vanguard Value (VTV)
  • SPDRs (SPY)
  • Vanguard Emerging Market (VWO)
  • Vanguard REIT (VNQ)

I wonder how this all-ETF portfolio did in 2008 :)

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4 Responses to “Lazy Portfolios Built with ETFs”

  1. Sean |  Jan 06, 2009 at 5:22 pm

    Thanks for the helpful list. When choosing the Mutual Funds, you would review their performance history and fund manager etc. When choosing ETFs, what criteria do you usually use?