Lazy Portfolios – I’m Laughing At You Again

by Darwin on March 27, 2012

It’s been a few years running now (2011, 2010) where I pointed out the the contrived beauty and simplicity of the “Lazy Portfolios” regurgitated by MarketWatch’s Paul Farrel ad nauseam is nonsense.  See, these nifty portfolios were set up with the benefit of hindsight and spewed out a few years ago when virtually every asset class was trouncing US stocks (using the S&P500 index as a proxy).  Of course emerging markets, commodities and bonds looked great as US stocks were crashing! Duh.  However, I warned that moving forward, these asset classes are no more likely to beat the US equity indices than random chance.  And I was right. My argument remains the same, but the results are just embarrassing for the proponents of these tools.  What is more embarrassing than the performance though is the complete lack of acknowledgement of their under-performance and lack of utility.  Let me be clear – I’m all for diversification, risk management, investment horizons and all that good stuff.  What I’m criticizing here is the claims of superiority of portfolios which are clearly NOT superior, have not been for years, and are no more likely to be in the future than throwing darts at the ticker section of a newspaper.  Check out this screenshot:


Check this out.  Not only did the S&P500 outperform ALL (yes, ALL) of these wonderful portfolios over the 3 year period, but also over the prior year (this spans the timeframe of my posts).  You might tout the .12% difference of the Yale portfolio last year, but consider the higher expense ratios and commissions involved in buying multiple instruments as opposed to simply picking up SPY, one of the lowest-cost ETFs, so for all intents and purposes, SPY also outperformed ALL over the prior 1 year period.  This is what I stated was entirely plausible in last year’s article (Told Ya So) and I’ll probably be writing the same thing next year – that any of these portfolios may or may not beat the S&P500, but they are no more likely to do so, regardless of the claims of the proponents.

Here’s what’s really shameless. Today, with this complete trouncing in clear view, MarketWatch publishes a piece of screed barely worthy of mention were it not for the complete and utter irony contained within “6 Reasons Wall Street Hates Lazy Portfolios“.  Hilariously, there is no mention at all of the performance of the lazy portfolios to the US benchmark, only platitudes chastising investors for NOT following their bad advice.  They make statements like:

  • “Lazy Portfolios give investors a far superior alternative than gambling retirement savings in Wall’s Street’s casino” (umm, no, my 100% US equity exposure in my 401(k) is kicking their ass)
  • “they consistently beat the S&P 500 on a long-term basis” (first off, no they don’t. Next, you used historical returns of top performing asset classes to build them. Hindsight is 20/20)
  • “create a long-term portfolio that wins in bear and bull markets” (That is a lie.  We are in a bull market and NOT a ONE of these portfolios is beating a simple SPY ETF.)
  • “You’ll win, and more important, you’ll have lots of time left to enjoy what really counts: your family, friends, career, sports, hobbies, living life to the fullest.” (No, you’re not winning. And if you spend hours analyzing these stupid portfolios, that’s WAY more time than just buying the US market – 1 fund.  More BS.)

The premise here is not to tell you to avoid diversification.  It is not to tell you to avoid low-fee ETFs and mutual funds.  It is to tell you not to believe everything you read, consider the source (and their motives) and that in general, the mainstream media is completely and utterly full of crap and the sheeple blindly follow.




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1 Keith Fox March 28, 2012 at 12:02 pm

I agree the article is nonsense for the most part because it’s essentially a “feel good” article for average investors which provides little to no new information. It contains mostly fluff arguments centered on hyped-up portfolios which are basically driven by a few very fundamental investing strategies. But, what’s shameless about it is how it presents “lazy portfolios” as some secret boon the overpaid Wall Street money managers don’t want you to know about.

I’m not disputing that the portfolios have any merit. In fact, I admire the concept behind it. They take advantage of some of the most widely known and accepted conservative investing techniques: (1) diversification over various markets via no-load index funds, and (2) taking advantage of the long-term benefits of a “buy and hold” strategy. That’s it! The rest of the article is fluff on the benefits of employing these two investing concepts.

The point is unless you’re a clueless investor making frequent uninformed and/or emotional trades to your broker’s delight; you’re probably already employing a “lazy portfolio” strategy. Any success achieved by these portfolios can be attributed to the fact that they all follow very fundamental conservative investing techniques that any investor can easily achieve on their own.

2 Jay March 28, 2012 at 3:19 pm

Umm, all of these portfolios out performed by 1.5 -3% a year per the 10yr Ann ret column. We knw they outperform back tested because that’s how they were developed in the first place. Beating the index by a compounding 2% for a persons working life almost *doubles* the return. If the effort associated with active investing were put into earning more income to invest then the returns are that much greater! Sadly anyone starting Yale U’s now may abandon it in one of the years it underperformed rather than sticking with it. All things considered a vanguard broad index sure is hard to beat in practice.

3 N.C. April 19, 2012 at 9:32 pm

Lazy portfolios appeal to people like me who prefer to buy and hold. I’m not a swing or day trader, and I know little about the markets. Lazy suits me just fine. I’m not into checking my retirement portfolio every day and re-balancing all the time. I want investments that do well over decades until I retire, and over the years I diversified with the bulk of my portfolio with index mutual funds. I didn’t realize it but I’ve already had a lazy portfolio before I read these MarketWatch articles. So are you laughing at the lazy portfolios or the losers/sheeple like us who follow this advice? We’ll see who has the last laugh in about 25 years.

Darwin's Finance Reply:

@N.C., I’m laughing the smug author who makes his name based on these portfolios that were cherry-picked with the top performing sectors historically and made claims which were unfounded (and since disproven) that they were sure to outperform “the market” and didn’t (like I predicted). People shouldn’t write checks they can’t cash.

Chester Reply:

@Darwin’s Finance,
Get a life . If the insight you share is so amazing, sooner or later your readers will figure that out; you don’t need to tear someone else down or flaunt how ass kicking your investments are.

Darwin's Finance Reply:

@Chester, if you read the initial article and his smug “anyone who doesn’t follow my advice is a dumbass” approach, it’s hard not to point out when he’s wrong. If you’re gonna be an arrogant ass about your predictions, you’d better be right! (Which he isn’t)

4 krantcents April 21, 2012 at 11:37 am

I often wonder, if there are other reasons they tout one or the other fund or stock.. Do they either have a interest or receive something for pushing the stock? Maybe I am just a cynic!

5 Jay April 21, 2012 at 2:41 pm

Over the past 10 years all of these lazy portfolios beat the s&p by a statisticaly significant amount and probably only required about 10hours total to rebalance once a year! How many hours did ou spend over the past decade and did you beat all of these lazy portfolios? Even if you did, could you teach your system well enough to a clueless sibling or friend? Perhaps your investing research and management time would have been better spent writing a book or starting a small side business? Three of those portfolios made about 7%, can they be back tested 20 or 30 years or more for a tie breaker?

6 Financial Advice for Young Professionals April 25, 2012 at 3:13 pm

Here’s my lazy portfolio: Vanguard Total Market, Vanguard International Fund and Vanguard Bond Fund 🙂

7 The Nervous Cat May 30, 2012 at 1:22 pm

Ok, I get it. You’re criticizing the superiority of lazy portfolios, not the people who invest in them. I happen to be one of those people. I don’t have a lot of investment experience to figure out market timing, so I pick that laziest mutual funds that track indexes from broad swaths of the market and have low expense ratios. I want to avoid tinkering with my portfolio – especially during times of panic where the wrong instinct is to sell sell sell. I want to set it and forget and like Rip Wan Winkle wake up decades later with long term gains. I don’t want the headaches of managing my investments on a day to day basis and I don’t want to pay a financial advisor to do that for me. So now can you understand why I like lazy portfolios? They’re good enough for me, even if they aren’t perfect for everyone.

8 Jay May 30, 2012 at 8:33 pm

Vbinx is up about 6% for past decade. Not as good as some if these but possibly lower cost than trying to replicate Yale or Aronson. The Permant portfolio is up an impressive 10% despite the shockingly conservative allocation.

9 aa August 6, 2012 at 1:30 am

These lazy portfolios won’t beat stock-only funds in a red hot bull market because they have bonds. But when the market dips, they can save some people from heart attacks.

aaa Reply:


The beauty of diversification, my friend.

Roberto Reply:

This is the most intelligent comment so far.

10 Etienne April 18, 2013 at 4:16 pm

Is this a joke?
Only a fool would look at 1 or 3 year returns to gauge value of an investment.
Your own chart shows the lazy portfolio as far superior in the medium run (10 years).

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