Back in December, MarketWatch columnist and author Paul B. Farrell talked to Mike Causey and me on “Your Turn” about his “lazy portfolios.” Farrell’s been following several investors who’ve created investment portfolio that are low-cost and low-turnover but so successful that they beat actively managed portfolios. Farrell has chosen a great name for the portfolios because you essentially set them up, automate your deposits and forget about them, except to rebalance them once a year or so. He’s even written a book about lazy investing that’s become a must-read for investors who don’t want to devote their lives to chasing returns.
Some detractors of lazy portfolios say they can do better through market timing — leaving the market when stocks are headed down and getting back in when they head back up. If you’re Miss Cleo the phone psychic, you might be able to tell when the market is headed north. (I never could figure out why those psychics didn’t make a fortune in market timing, lottery numbers or some other predictive art.) Otherwise, you’ve got to figure out how to be right twice — when you get out of the stock market and when you get back in.
So what if you’ve decided you want to get lazy with your Thrift Savings Plan account? It’s easy. Farrell tracks seven lazy portfolios in his regular checkups. Some of them include funds that don’t translate directly to the TSP. The Aronson Family portfolio is successful, for example, but some of the 11 funds have nothing similar available in the TSP.
Over the next few days, we’ll look at some of Farrell’s lazy portfolios, and how you can set them up in your TSP account. First, one of my personal favorites, because it’s so simple: Alan Roth’s second-grader starter portfolio.
Alan Roth is a fee-only financial planner in Colorado Springs, Colo. He’s put together a portfolio that’s so simple, his second-grade son understands it and understands why it works. Roth says actively-managed portfolios don’t do any better in down markets than up markets. The second-grader portfolio is easy to replicate in your TSP.
Roth started his son with 60 percent of their money in Vanguard’s Total Stock Market fund. When you put together the C fund and S fund in the Thrift Savings Plan, you’ve essentially got the entire stock market. Roth says the US stock market is roughly 80% S&P 500 and 20% the rest of the market. Thus, for the 60% in US stocks, 48% in the C fund and 12% in the S fund gives an approximation of the US stock market.
Kevin Roth, Alan’s son, has another 30 percent of his money in Vanguard’s Total International Stock fund. This one’s easy to copy. Just put 30 percent of your total portfolio in the I fund. The remaining 10 percent is simple, too. Kevin’s is in the Vanguard Total Bond fund. You can actually do even better; you’ve got access to the G fund, a product no other investment plan can even approach. Put the last 10 percent of your money in the G, and you’re investing like a second grader.
Getting lazy with your TSP is easy as well as profitable. We’ll look at two more of Paul B. Farrell’s lazy portfolios tomorrow.
