A lazy portfolio is a portfolio of low-maintenance investments that requires minimal effort to keep it running smoothly. You don’t need to be an investing wizard or financial whiz kid to build a solid portfolio. In fact, in most cases the simpler your strategy, the better. Especially if you are not a finance professional.
Making things simple means cutting out unnecessary costs and complications so you can invest with peace of mind rather than worry about hidden pitfalls. There are plenty of ways you might be undermining your own ability to grow your savings in an efficient way when you choose an active investing strategy.
When done right, the “invest and forget” kind of approach is generally the best option for the average investor.
The lazy portfolio is a type of passive investing approach. Investors don’t actively choose individual stocks for creating a lazy portfolio. Common ways of building a lazy portfolio is either investing ing ETFs or using automated tools. For example, a lazy portfolio might consist of index funds that track major stock market indexes such as the FTSE 100 and S&P 500.
Lazy portfolios are often favored by investors who want to minimize their time commitment while still achieving long-term gains.
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Reasons to choose lazy portfolio approach
Investing can be costly!
There’s no denying that an active investing approach can be costly. The average cost of opening a brokerage account on one of the popular investment platforms is very low. However, this small fee quickly adds up once you start buying stocks. There are fees associated with selling and trading stocks which can easily erode your gains. You may also need to pay taxes on investments.
Investing can also be time-consuming. Whether it’s researching new stocks or choosing between different types of funds, you’re investing time that could be spent doing other things. And if you have a full-time job, you may not have the time to invest in the way you want to. So, another cost of investing is the opportunity cost. If you’re not taking advantage of your investment dollars by working or spending time with friends and family, you’re forfeiting an opportunity.
Mutual funds are one of the most popular and cost-effective ways to build a diversified, low-risk lazy portfolio for investors.
One benefit of mutual funds is that they are typically less costly than buying individual stocks. This is because mutual funds charge a fee for managing your money instead of paying all the expenses yourself. If you want to invest in only one or two stocks, it makes sense to pay the expense yourself rather than pay a fee to manage hundreds or thousands of stocks at once.
A three-fund lazy portfolio using ETF funds can be a good and diversified passive investment approach. It can be a good way to take advantage of the low cost, diversification, and tax efficiency offered by ETF funds. The portfolio includes a mix of Vanguard index funds.
An efficient three-fund lazy portfolio can consist of three ETF funds:
- Total Stock Market Index Fund,
- Total International Stock Index Fund,
- Total Bond Market Index Fund.
By investing in index funds, you are essentially investing in a basket of stocks that track an index like the S&P 500 or the FTSE Global All Cap. This means that you are buying a representative sample of the entire stock market at one price instead of buying fractions of each individual company in the market.
Checking Vanguard or Fidelity index tracker funds is a good starting point for people who want to start investing but don’t know where to begin. You can see your portfolio grow over time without having to pick individual stocks or allocate too much of your portfolio in one area.
Automated lazy portfolios
Automating your investments is one of the ways to build a lazy portfolio. With this approach, you need to set up an investment account that automatically invests a fixed amount of money each month. There are a number of ways to automate your investments.
A popular approach is using an automated investment platform (e.g. robo-advisor) to make regular investments into your portfolio.
Automation platforms use algorithms to automatically manage your investments across different asset classes and timeframes, saving you time and effort while reducing risk.
For example, a robo-advisor can automatically rebalance your portfolio based on your overall asset allocation goals and risk tolerance. It will also monitor how much money you are spending and whether you are meeting your savings goals, helping you stay on track.
Automatic investing can also help prevent mistakes, such as forgetting to re-invest dividend income or underperforming because of poor timing.
Chasing short-term returns can be counterproductive
Researches show that timing the market is extremely difficult. Even for the most experienced professional investors.
it’s possible to lose your entire investment in just a few days during the volatile times of the market if you act impulsively when investing. It is not an easy business to stay disciplined through the ups and downs of the sentiment cycle of the markets.
This can be especially problematic if you’re investing in risky investments such as stocks and cryptocurrencies. In addition, short-term investing can also lead to higher fees. So if you’re looking to grow your investments safely, it may be better to look at adopting a long-term strategy that doesn’t require timing the market.
An active trading approach can be time-consuming and have significant costs associated with it. A well-diversified lazy portfolio can be the right choice for many investors to maximise their ROI and achieve financial freedom.