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Money for Nothing: How to Build a ‘Couch Potato’ Portfolio


Want to grow wealth but don’t want to have to spend hours poring over your investment portfolio or investment decisions? If so, a lazy portfolio may be right for you. Lazy portfolios are designed to generate returns without requiring constant maintenance or attention. It’s a 180-turn from active investing and day trading, which are decidedly more hands-on. If you prefer a passive approach to investing or you lean toward a buy-and-hold strategy, then building a lazy portfolio could be a simple way to achieve your financial goals. Finding the kind of portfolio that fits your goals, timeline and risk profile is best done by working with a financial advisor.

What Is a Lazy Portfolio?

A lazy portfolio is a collection of investments that more or less runs on autopilot. Lazy portfolios are designed to weather changing market conditions without requiring investors to make significant changes to their asset allocation or goals. For that reason, they can sometimes be referred to as “couch potato” portfolios.

Having a lazy portfolio doesn’t mean that you don’t care about your investments or that you take a completely laissez-faire attitude toward investing. Instead, it means that you’ve created a portfolio that can continue generating returns, regardless of what the market is doing at any given time.

How a Lazy Portfolio Works

Lazy portfolios are designed to be mostly set-it-and-forget-it. When you build this kind of portfolio, you start by deciding which investments to include. You can then decide how often you want to invest and in what amount. Automating investments monthly, for example, can be a simple way to benefit from dollar-cost averaging over time. This principle smoothes out market highs and lows since you’re continually buying in regardless of price.

You’d still need to rebalance your portfolio routinely to make sure your asset allocation continues to match up with your goals and risk tolerance. Tax-loss harvesting is something you may want to tackle once or twice yearly if you’re investing in a taxable brokerage account. This can help you preserve more of your returns by offsetting capital gains with capital losses.

Lazy portfolios can follow an index investing strategy, which relies on index funds as the centerpiece. With this type of portfolio, the goal is to meet the market and match the performance of the underlying index. That doesn’t mean that a lazy portfolio can’t deliver above-average returns, however. It’s possible that a couch potato portfolio could outperform an active portfolio, depending on which investments you choose and how the market moves.

This kind of approach is better suited for investors who have a longer window in which to invest or those who aren’t interested in active day trading. Lazy portfolios make it possible to reap investment rewards without doing much heavy lifting to get there.

Lazy Portfolio Example

One investor’s lazy portfolio may not look the same as another’s. For example, some lazy investors may rely on just one fund. So you might invest in a target-date fund that’s based on your expected retirement date. Target-date funds adjust their asset allocation automatically over time as they get closer to that date.

Or you might prefer a two-fund or three-fund portfolio instead. Here, you’re investing in two to three funds for total diversification. For example, say you want to create a lazy three-fund portfolio using Vanguard funds. Here’s what your portfolio might look like:

  • 50% Vanguard Total Stock Market Index Fund (VTSAX)
  • 20% Vanguard Total International Stock Index Fund (VTIAX)
  • 30% Vanguard Total Bond Market Index Fund (VBTLX)

You could do the same with Fidelity index funds or index funds from Schwab. And you can adjust the asset allocation for each fund, based on your age, risk tolerance and goals. So if you’re younger, for example, you might shift 80% or 90% of your portfolio to stocks and just 10% to bonds.

By choosing index funds that offer exposure to domestic stocks, international stocks and bonds you can get complete diversification. The only thing you might have to change over time is your asset allocation as you get closer to retirement.

Pros and Cons of Lazy Portfolios

Lazy portfolios can offer simplicity for investors who want to build wealth but don’t want to have to constantly monitor their investments. It’s fairly easy to set up a lazy portfolio with a brokerage account or even inside your 401(k) or IRA. Index funds can offer consistent returns over time and they may carry lower expense ratios compared to actively managed funds. So overall, lazy portfolios can be less of a hassle for investors and less expensive to maintain.

The risk, of course, is that a lazy portfolio will underperform and fall short of your investment goals. So it’s important to understand what you hope to get out of following a couch potato approach to make sure that it’s right for you. Otherwise, lazy investing might prove disappointing to you if your returns aren’t what you expected.

How to Build a Lazy Portfolio

Building a lazy portfolio starts with deciding what you want it to look like, i.e. one-fund, two-fund, three-fund, etc. Remember that for lazy portfolios, less is more. So you may want to cap the number of funds you choose at five.

Next, consider which funds are best suited to your needs, goals and risk tolerance. Index funds offer simplicity since they track broader market indexes. That can make diversification easier for you. If you want to choose a three-fund portfolio you might follow the earlier example and choose a U.S. stock fund, an international stock fund and a bond fund.

Keep in mind that the funds you choose don’t have to belong to the same company. You can mix and match funds if you want. But pay attention to the underlying assets, fund performance and expense ratios. The most important thing is to find a combination of funds that are going to help further your lazy investing goals.

The final step is automating your investments. Again, automating monthly contributions can help you take advantage of dollar-cost averaging. You can also benefit from the power of compounding interest. If you’re earning dividends from a lazy portfolio, you might consider reinvesting those automatically as well if you don’t need them for current income. Automating is something you might be able to easily do if you’re investing through a robo-advisor.

The Bottom Line

$100 bill with a green arrow pointing upwardsLazy portfolios can appeal to investors who want to be in the market while avoiding major headaches. Whether a lazy portfolio approach is right for you can depend on your investing style and what you hope to achieve as an investor. Getting to know different funds and studying lazy portfolio examples can help you decide if it makes sense for you.

Tips for Investing

  • A 60/40 portfolio is another option for lazy investing. With a 60/40 portfolio, 60% of your portfolio is held in stocks and the other 40% consists of bonds. You can invest in individual stocks or bonds or buy mutual funds, index funds or ETFs. A 60/40 portfolio can be easy to maintain through regular rebalancing. But think about what kind of trade-off you might be making with regard to returns by keeping a larger percentage of your portfolio in bonds.
  • Consider talking to a financial advisor about the pros and cons of choosing a lazy portfolio approach. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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