As I get my financial house in order in 2012 one of my first steps was to check in on my retirement accounts and adjust them a bit. I’ve never really had a strategy for investing and kind of pick the easy option. While reading I Will Teach You To Be Rich I learned about David Swensen and his Lazy Portfolio.
For those not familiar with David Swensen I recommend you check out the Wikipedia article about him and read more about him. He is the Chief Investment Officer for Yale’s endowment and investment funds. I particularly liked this quote:
He slams many mutual fund companies for charging excessive fees and not living up to their fiduciary responsibility. He highlights the conflict of interest inherent in the mutual funds, claiming they want high fee, high turnover funds while investors want the opposite.
The “easy option” I talked about above going along with this thinking. I don’t like (traditional) mutual funds. These put my money into the hands of some “professional” who – historically – doesn’t outperform the S&P 500. I still want to diversify though. The easiest (and best for me) option is index funds.
An index fund is a fund that tracks a specific index like the S&P 500. They adjust their allocations based upon the movements of that index and are managed by a computer so that they match as closely as possible. The great part about that is there’s no fat-cat fund manager to pay an annual salary and bonus to. Computers eat little, never sleep and work 24 hours a day. They also don’t like yachts because the water isn’t nice to their circuits.
So for a while I’ve been investing in index funds but only of one type – the S&P 500 index fund type. This is on the advice of an accounting professor I had in college who said if I was to invest in nothing else, at least put it in an S&P 500 fund and leave it there. I now have a small retirement nest egg that I’d like to diversify a bit in the case of another market downturn. Enter David Swensen’s Lazy Portfolio. The portfolio consists of the following:
- 30% in Vanguard Total Stock Market Index (VTSMX)
- 20% in Vanguard REIT Index (VGSIX)
- 20% in Vanguard Total International Stock (VGTSX) or (15% in VGTSX and 5% in VEIEX)
- 15% in Vanguard Inflation Protected Securities (VIPSX)
- 15% in Vanguard Long Term Treasury Index (VUSTX)
There is no expectation of return on this portfolio – but I’m hoping it will produce something that is inflation-beating. It’s a good balanced mix of types of investments (like bonds, stock and real estate) and levels of risk.
One tweak I did make to his allocations is to use all ETF’s though because I love ETF’s and the liquidity they provide even though I shouldn’t need to touch this money. To do this with ETF’s you can use:
With the exception of TIP all three of these match the funds above, but in ETF form. If you have a Vanguard retirement account the trades should be free as well as long as you haven’t used your free Vanguard fund trades up.
I plan on revisiting these twice annually to ensure they stay within the allocation percentages. I will report back with my returns.
Anyone else have a similar lazy strategy? Please share in the comments!
Like most families I probably spend the most money in the months of November and December than any month of the year. Between Christmas presents, family in town, holiday meals being larger than normal, going out to eat – it’s just an endless stream of spend spend spend. This year I was fortunate to have saved a little before the holidays but there was no sense of ‘planning’ that went into my holiday spending. I kind of closed my eyes and hoped it worked out alright and I didn’t end up with any money on a credit card.
. It contained a lot of knowledge about starting up a club, how to calculate shares in the club, what you do when someone wants to leave the club and also gave some example contracts and legal documents at the end.