Lazy Portfolios are LOSERS – Told ‘Ya So…

by Darwin on April 12, 2011

When I penned an article (here) criticizing the lionization of the Lazy Portfolio mantra as just historical cherry-picking and luck, the MarketWatch lemmings jumped all over me for doing the unthinkable – challenging such a seemingly successful strategy with great PR.  What I said at the time was pretty much that these portfolios were no more likely to beat a simple S&P500 index or other major benchmark than a monkey throwing darts at a newspaper.  Ironically, since my initial critique, the performance of ALL the Lazy Portfolios MarketWatch was plugging started to underperform and guess what?  No articles since October 2010.  Why the silence?  Then this week, finally, they ran an article (here) touting how great they were again and how they beat benchmarks during the prior 3 and 5 year period.  Well, we knew that – for the reasons I cited 2 years ago – they held either emerging markets or bonds, etc., which had outperformed historically.  But the article kind of glossed over the sub-par performance during the past year.  How could you write a “winning” article with such gusto when you’re really LOSING?  In reading the article, it’s practically calling anyone NOT using a Lazy Portfolio an idiot.

Out of Date, Out of Touch

Perhaps they’ll get around to updating it, but there’s an out of date table with returns versus the S&P500 that shows 7 out of 8 of the Lazy Portfolios LOSING to the S&P500 during the prior year…and the 8th is a marginal win, so let’s call it even with the higher expense ratio and trading costs compared to just owning SPY.

The table is out of date because it shows the S&P500 as being up 13.10% when it is up less than that over the prior year period (off by a few points), but regardless, they are underperforming as of today I’m sure as well.

Finally, you’ll surely get a kick out of the pictures of Paul Farrell, the proponent of these mediocre gimmicks.  The two picks are about 30 years apart.  Why not just use the same headshot for all articles?  Not really relevant to the investing thesis, but more of the same from Marketwatch – disjointed gimmickry.

Again, don’t get me wrong.  Most investors would probably be better served in having a long-term strategy of diversified, low-cost ETFs instead of trading in and out of stocks.  But let’s just call it like it is. These Lazy Portfolios aren’t the holy grail they are purported to be.  Overconfidence is one of the most dangerous attributes in investing.  Look what happened to real estate investors since 2007, the investment banks during the financial crash and now, the gold/silver permabulls.  Overconfidence is way more dangerous than being a skeptic.

Are You Enamored by Lazy Portfolios?

Or Do You Have Your Own Strategy?

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{ 13 comments… read them below or add one }

1 Chad April 13, 2011 at 9:34 am

Most of these “lazy” portfolios have some bond allocation. It isn’t surprising that the long run expected returns are lower than the S&P500, and it isn’t surprising that these portfolios will do relatively well when equities perform poorly.

However, I think it goes too far to describe them as “loser” portfolios. Comparing a balanced stock-bond portfolio to an all-equity benchmark is not a valid comparison…..regardless of whether the purpose is lionizing or bashing.

Investors should try to maximize the return they can get at their desired level of risk. It would be interesting to see if these lazy portfolios have better Sharpe ratios than the S&P500 over the long term. I suspect that many of them do. If the expected returns are too low for you, then reduce or eliminate the bond allocation…but diversifying more broadly than the S&P500 is still a good idea.


2 شات April 15, 2011 at 4:34 pm
3 DIY Investor April 16, 2011 at 9:22 am

Chad is exactly right. We need to compare apples to apples and let the numbers tell the story.


4 Buck Weber April 20, 2011 at 9:09 pm

Only in America is losing labeled winning.


5 Hunter April 25, 2011 at 1:26 pm

Great write-up. It’s refreshing to see an industry commentator that speaks freely about performance. Call them out! This industry, from Standard & Poors down, is all about back slapping, hand shaking, deal making, and scared of upsetting the apple cart by leveling some real criticism. A little dissent is called for, a lot. If you’re not offended once in a while at what goes on, you’re not paying attention.


6 Cheyne Capital April 26, 2011 at 10:35 am

Interesting post and Buck is right about USA, thanks for sharing



7 Charles April 29, 2011 at 9:31 pm

The lazy portfolios won’t win every single year – Farrel, and any of the other writers who advocate long-term passive investing will tell you that. And in the long-term, many of these portfolios outperform the S&P, which is the most important thing to consider – as opposed to one-year performance. I think Farrel et al’s approach is a good one. Many people get skittish with their money – the majority in fact, if you look at how much money was being withdrawn from the market at the bottom of our recession only to flood back in after much of the rally had taken place. Add to this the fact that the majority of Americans lost money in the last decade, versus those who would’ve taken a long-term, passive, and well-diversified investing stance (one that the Lazy Portfolios suggest). People need reassurance, which is what Farrel and others provide.

And in regard to cherry-picking, while I will concede that the Aronson portfolio was heavily weighted towards emerging markets when the market was most favorable towards those funds, you can also look at Swenson’s which is heavily invested in REITs. During the housing bust, his portfolio fared the worst, whereas now with REIT funds in positive territory, his performance has improved considerably. I would argue that these portfolios stress asset allocation and diversification – they don’t attempt to cherry pick and predict what types of funds will be “hot.”


8 Financial Independence May 2, 2011 at 10:26 am

While it is fascinating to watch you money grow weekly/quarterly/yearly…

I believe it serves only one function – to generate income for financial analysts and brokers. Yes, some of the portfolios beat S&P dramatically.

But most do not, some are loosing. What is the trade here – risk with your retirement / life time savings in hope to get additional money, or just follow the flow and keep working on yourself and the job?

Obviously if the time would be invested in your prime source of income, you are likely to get a salary increase and achieve financial independence 🙂 What would you say?


9 debtpayer May 24, 2011 at 11:08 pm

I always thought my target retirement through Vanguard was the laziest of all funds…


10 jeff June 12, 2011 at 3:40 pm

He looks exactly like my chocolate, Rigby!


11 N.C. April 19, 2012 at 9:15 pm

That table is out of date as you said. I clicked the link and got different results than the table you posted in your blog.

How many people check their 401k retirement funds? If they are like me they check it a few times a year. I am lazy – so I modeled my IRA portfolio with similar mutual funds so I can set it and forget it. Most of us are lousy investors anyway so lazy is better than lousy.


12 Whyzor July 12, 2012 at 11:22 am

You do realize you’re comparing a short-term 1yr outperformance vs longer-term 5yr and 10 yr outperformance right? I could just as easily use your logic and say abc fund during the past 3 months outperformed your xyz fund. Your logic is fuzzy. The Lazy porfolio will serve 90% of the people with way less effort.


13 H July 21, 2012 at 3:34 pm

@Chad, Yes, what are their Treynor/Sharpe ratios?


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