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In a previous column, I discussed Canadian based lazy portfolios, now it's time to head south of the border.
But first a refresher.
Some of the best minds in finance offer free advice on managing investments and have made available model portfolios so simple in design that they can be run with only one to three hours effort a year. Yet, their passive, indexing approach delivers better returns than three-quarters of professional investment managers, according to academic studies.
Call them the Lazy Portfolios (following the label coined by MarketWatch columnist Paul Farrell). Set them up by opening an account with an online broker and using mainly exchange traded funds (ETFs) as building blocks. For investors who want to make regular (smallish) contributions or automatically reinvest income/dividends without commissions, index funds (e.g. TD eFunds or Vanguard Funds), are alternatives.
After a Lazy Portfolio is set up (some of the examples below are updated to include more recent ETFs), there is usually an annual rebalancing exercise to restore the original weights of the asset classes. This can be done by adding new money to the investments that have lagged or by shifting funds from the leaders to the laggards.
These Lazy Portfolios win by following three basic rules: low transaction costs, proper diversification (reduced correlations between investments), and annual rebalancing (a version of "buy low and sell high" value investing). Because markets are efficient, academics argue, stock-picking and market timing don't really contribute to portfolio performance; low-cost asset allocation is the key driver.
Margaritaville (U.S.)
Scott Burns, the Dallas Morning News personal-finance columnist who pioneered the Lazy Portfolio concept in 1991 with the creation of the U.S. Couch Potato Portfolio, has a more recent addition called the Margaritaville Portfolio. Its five-year annual rate of return is 7.2%, according to Paul Farrell.
Burns' latest creation builds on the original by adding exposure to international stocks. It also replaces the conventional bond fund with a fund investing in inflation-protected bonds (which enhances inflation protection but might elevate volatility since inflation-protected bonds move more in line with stocks).
No Brainer (U.S.)
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