Lazy Portfolios

I'm a huge advocate for using the so-called lazy portfolio approach to investing. In fact, I would even go so far as to suggest that if you don't incorporate some variation of it in your own strategy, then you are short-changing yourself and your financial future. Yes, I really think it is that important!

While I spend a great deal of time talking about the market and trading stocks (especially since that is how I earn my living), you should also understand that I think the lazy portfolio approach is the very best way to go for the vast majority of investors. In fact, when friends, family, and even casual acquaintances ask me how they should invest in the market, my first and best answer is for them to develop a simple portfolio of index funds and exchange-traded funds (ETFs). Unfortunately, their response is always one of either utter disbelief, confusion, suspicion, and/or frustration. After all, how can someone who successfully trades for a living say something so lame and simple! I think most think I'm just trying to dodge their question and/or not reveal my "holy grail secrets." But, nothing could be further from the truth.

While trading for a living presents a number of challenges and requires specialized skill sets, experience, tools, and knowledge - successful long-term investing does not. Strategies that keep it simple, have low overhead costs, which are tax-efficient, and diversified will provide you with everything you need to hit your objectives.

Unfortunately, even with the increased use of ETFs and index funds, studies have shown that most individual investors are reluctant to adopt these strategies even though many have produced excellent returns and have been properly back tested to show that over the long-term they will perform better than anything else. As many of you already know, the overwhelmingly majority of professional money managers do not beat the market consistently over the long-term and the figures are even worse for individual investors. Why is this the case? In my view, it basically has to do with three main things: lack of patience, fear of losing money when assets go through periods of underperformance, and greed for earning higher returns using riskier strategies.

Don't get me wrong, I love risk. I really enjoy making good and aggressive trades, but I'm also smart enough to know that in the long run, the market always wins. And, for that reason, the majority of my financial assets sit in a lazy portfolio strategy (which I've previously shared). That strategy was created and adopted to serve my own needs and frankly the one you choose for yourself will also be different as it should be. But, fortunately you don't have to reinvent the wheel to devise a strategy that works best for you.

Over the next week (let's just call this lazy portfolio week!), I'm going to provide several lazy portfolio strategies along with informational links to help you determine whether these resources are helpful to you. (Members can login now to see the entire lazy portfolio list of 25 model portfolios including my very own passive aggressive portfolio strategy). In addition, for this week's Q&A with members, I've decided to focus specifically on using these ETFs and incorporating them into your own strategies. Please use the contact form in the questions and answers area of the members' only website to submit your question).

All in all, I encourage you to spend some time this week looking through these resources, as well as to start building your own model portfolios based on these recommendations. If you're like me, you probably have your own doubts and reservations about using this kind of strategy and I think that is both healthy and good. My suggestion for you is to develop a few model portfolios based on the strategies I cover this week and track them closely for a couple of years. If you do this, as I have, I think you'll ultimately value the performance these simple, but effective portfolios can provide.