I’m a firm believer that investing doesn’t have to be complicated and that it doesn’t have to require a great deal of ongoing effort. In that vein, I’m always drawn to “lazy portfolios.” The following are ETF renditions of some of the most popular lazy portfolios.
Most of them could be done just as well using regular Vanguard index funds. The ETF versions simply allow you to implement the portfolios at your brokerage firm of choice. (See here for more about ETFs as compared to index funds.)
1. Allan Roth’s Second Grader Portfolio
- 60% Vanguard Total Stock Market ETF (VTI)
- 30% Vanguard Total International Stock ETF (VXUS)
- 10% Vanguard Total Bond Market ETF (BND)
The asset allocation between the funds is clearly intended for a younger, more aggressive investor. But Roth’s idea of keeping it simple applies to everyone. Even for investors close to (or in) retirement, these three ETFs should get the job done.
2. David Swenson’s Ivy League Portfolio
- 30% Vanguard Total Stock Market ETF (VTI)
- 5% Vanguard Emerging Mkts ETF (VWO)
- 15% Vanguard Europe Pacific ETF (VEA)
- 20% Vanguard REIT ETF (VNQ)
- 15% Vanguard Intermediate-Term Government Bond ETF (VGIT)
- 15%Â (TIP)
David Swenson, the Chief Investment Officer at Yale University, recommends the above portfolio (a 70/30 stock/bond allocation) in his Unconventional Success. He is a big proponent of equity-oriented allocations for investors with long time horizons.
3. Rick Ferri’s Core Four Portfolio
- 36% Vanguard Total Stock Market ETF (VTI)
- 18% Vanguard Total International Stock ETF (VXUS)
- 6% Vanguard REIT ETF (VNQ)
- 40% Vanguard Total Bond Market ETF (BND)
“You only need a few asset classes in your portfolio, and after that there are diminishing returns. The mutual funds you choose to represent those asset classes should be the lowest cost funds you can buy.” –Rick Ferri, CFA on the Bogleheads Forum
4. Bill Schultheis’ Coffeehouse Portfolio
- 10% Vanguard S&P 500 Index ETF (VOO)
- 10% Vanguard Value ETF (VTV)
- 10% Vanguard Small-Cap ETF (VB)
- 10% Vanguard Small-Cap Value ETF (VBR)
- 10% Vanguard Total International Stock ETF (VXUS)
- 10% Vanguard REIT ETF (VNQ)
- 40% Vanguard Total Bond Market ETF (BND)
The title of Bill’s book, “The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life” is spot on. The above portfolio is intended to be rebalanced once per year and otherwise left alone. Sounds good to me.
5. Larry Swedroe’s Big Rocks Portfolio
- 9% Vanguard S&P 500 Index ETF (VOO)
- 9% Vanguard Value ETF (VTV)
- 9% Vanguard Small-Cap ETF (VB)
- 9% Vanguard Small-Cap Value ETF (VBR)
- 6% Vanguard REIT ETF (VNQ)
- 3% Vanguard Total International Stock ETF (VXUS)
- 6% SPDR S&P International Dividend (DWX)
- 3% Vanguard FTSE AW ex-US Sm-Cap ETF (VSS)
- 3% WisdomTree International SmallCap Div (DLS)
- 3% Vanguard Emerging Mkts ETF (VWO)
- 40% Vanguard Short-Term Bond ETF (BSV)
You’ll note that Swedroe’s portfolio is significantly tilted toward small-cap and value equities (with the reasoning that their higher risk levels should bring higher expected returns). It’s more funds than I’d personally like, but Swedroe makes a valid point that if you’re only rebalancing annually, the additional effort required by having a few more funds in your portfolio is pretty minor.
6. Harry Browne’s Permanent Portfolio
- 25% Vanguard S&P 500 Index ETF (VOO)
- 25% Vanguard Long-Term Government Bond ETF (VGLT)
- 25% Cash (i.e., money market funds)
- 25% SPDR Gold Trust ETF (GLD)
The idea behind Browne’s Permanent Portfolio is that the four asset classes have sufficiently low correlation that the portfolio should be able to put up modest gains each year under just about any circumstance imaginable.
7. William Bernstein’s No Brainer Portfolio
- 25% Vanguard S&P 500 Index ETF (VOO)
- 25% Vanguard Small-Cap ETF (VB)
- 25% Vanguard Total International Stock ETF (VXUS)
- 25% Vanguard Total Bond Market ETF (BND)
Bernstein, author of The Four Pillars of Investing, suggests the above portfolio for investors with a long time horizon. Note that it’s very similar to the first portfolio mentioned above (Roth’s Second Grader Portfolio), but with a much heavier allocation toward small-cap domestic stocks.
8. Harry Markowitz’s “Father of Modern Portfolio Theory” Portfolio
- 50% Vanguard Total World Stock ETF (VT)
- 50% Vanguard Total Bond Market ETF (BND)
Harry Markowitz–Nobel Prize winner and originator of Modern Portfolio Theory–when asked about his personal portfolio once replied, “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier…Instead, I split my contributions 50/50 between bonds and equities.” The above portfolio is a somewhat tongue-in-cheek implementation of Markowitz’s approach.
Thoughts?
Do you have a favorite? Does your portfolio closely resemble any of the above? (For those curious, mine looks very much like the Second Grader Portfolio.)
Update: Monevator has written a revision of this article outlining Lazy ETF Portfolios for UK investors.
Hi. I'm Mike Piper, the author of this blog. I'm 
I can’t believe you left out Scott Burns’ Couch Potato portfolio! He started with the Couch Potato (50/50 split between VTI and TIP) and has gradually added more elements over time. I personally use the 10-speed (10 equally weighted slices).
http://assetbuilder.com/couch_potato/couch_potato_results.aspx
Oooh, that’s a good one that I totally forgot. Thanks for sharing the link. 🙂
for my ETF taxable allocation, i guess it is somewhere between second grader and Swedroe’s small-cap value tilt:
50% VTI (Total Stock Mkt)
20% VWO (Emerging Mkt)
15% VEA (Europe-Asia)
15% VBR (Small-cap Value)
(my fixed income is all in my tax-advantaged accounts)
I love all of the names for these lazy portfolios – funny stuff. Anyway, thanks for sharing them, I had been looking into ETF’s lately, and now have a handy list to pick and choose from.
You can tweak any of these model portfolios to suit you by increasing (or decreasing) the bonds and decreasing (or increasing) the allocations to stocks proportionately. Roth does this with the 2nd Grader’s Portfolio by going from 60/30/10 to 40/20/40 for a more moderate portfolio or to 20/10/70 for more conservative (total US stock/total international stock/total bond). You can apply the same concept to most models.
Ah, the simplicity of it all. I genuinely wonder if I could get passionate about investing without all the satellites around the core that provide the drama.
Perhaps not good for wealth from a pure cost/returns POV, but great for motivation to save more.
(That said I am certain shuffling money about in the past 18 months has saved me versus sitting 100% in a stock market index fund, though a simple 50/50 index rebalancing with government bond approaches would have done at least as well I’m sure).
Confessionals over. 😉
I would add Paul Merriman’s model ETF portfolio aka Ultimate Buy and Hold Portfolio http://bit.ly/1VUrF. The portfolio and a simplified version of it is discussed in this Bogleheads thread http://bit.ly/qMoUq.
I thought Larry Swedroe was a big fan of TIPS and commodity exposure.
ETF examples:
iShares Barclays TIPS Bond (TIP)
PowerShares DB Commodity Index Tracking (DBC)
?
FP Hawks: Yes, from what I’ve seen Larry does often recommend TIPS and commodities. The portfolio above (or rather, the asset allocation of the portfolio above) was put forth in his Wise Investing Made Simple.
I’m sure he’d recommend different portfolios for different scenarios. His own portfolio, for instance, looks quite different according to what I’ve read on the Boglehead forums.
Swedroe is fixaed on commodities which I don’t understand. If you want commodity exposure, an emerging markets fund will give you plenty of exposure. You will not only get exposure to the commodity itself, but to the value added result created in the end product. For instance, VWO is very heavily dependent on commodity prices.
I’m considering something like the Ivy League portfolio, but have already learned that he has changed his mix to 10% emerging mkts and 15% REIT. If I allocate along the lines of the Ivy Portfolio, what source would I use to find out when he changes his allocation mix?
I’m totally new to this. But I’m curious why no one has Mid-Cap index funds in their portfolios? I saw this article at Morningstar suggesting that Mid-Cap funds may be a better mode of diversification:
http://news.morningstar.com/classroom2/course.asp?docId=2996&page=1&CN=com
It only looks at the period from 1979 to 1998. But looking around a bit myself, Vanguard’s Mid-Cap index (VIMSX) and the S&P 500 MidCap 400 Index seem to do better than small cap indexes and the S&P 500 from 1998 to 2010 also. So that bodes well for mid-cap indices from 1979 to the present.
cb, that’s a great question.
My suspicion is that it’s simply a matter of reducing complexity by reducing the number of funds.
As to mid-caps’ performance over the last decade, I’d say it’s simply an example that “actual returns rarely equal expected returns.” Theoretically at least, mid-caps’ risk and expected return should (naturally) be right between that of large-caps and small-caps.
On the other hand, it wouldn’t seem entirely unreasonable to suspect that there’s at least a little advantage to be gained from mid-caps’ relative unpopularity (due to people picking up large and small and ignoring what’s in the middle). Lack of demand leads to lower prices and higher future returns.
25% schwab emerging markets etf
25% schwab us broad market etf
25% schwab us large cap etf
25% schwab international equity etf
As always, an interesting post.
Harry Browne – Intriguing, so low on stock, and that Gold is scary. I wonder what he recommends for reallocating. More than anything, I wonder how it backtests over the last few decades.
Hi Mike,
I have confused myself again…if the expense ratios are so much lower on the ETF funds than comparable Index Funds, why would you ever buy or invest an Index Fund?
Kind regards, Capt. Mike
Hi Capt. Mike.
In my opinion, there are two primary reasons to consider investing in index funds rather than ETFs, despite their (often) higher expense ratios.
First, index funds don’t (usually) come with a commission to buy or sell, whereas ETFs (usually) do.
Second, pretty much every brokerage firm will allow for automatic monthly/quarterly buys or sells of a mutual fund, whereas only a handful will allow that with an ETF.
In short, the more frequently you’re making purchases (or sales) and the smaller the amount you’re investing, the more sense index funds make as compared to ETFs.