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"America's investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask," former Securities and Exchange Commission Chairman Arthur Levitt warned in an article in Fortune magazine a decade ago. That same year in his classic "Take On The Street," Levitt lambasted the fund industry as "a culture that thrives on hype ... withholds important information," a "cutthroat business" that "misleads investors." Today, it's worse.
Lazy Portfolios were born as a defensive move against this relentless war by guys with "masks and guns ... ripping off" America's 95 million Main Street investors. And the strategies of men like Levitt, Vanguard's Jack Bogle, Nobel Economist Daniel Kahneman, Warren Buffett, Yale's Robert Shiller and other industry giants were the inspiration.
Lazy Portfolios give investors a far superior alternative than gambling retirement savings in Wall's Street's casino. Simple solutions: Just three to 11 no-load low-cost index funds, and zero trading. And in the past decade we've discovered eight great Lazy Portfolios that investors are using as guides to building their own portfolios, without brokers or advisers.
Today, Wall Street, the fund industry and brokers hate these eight Lazy Portfolios even more. Not just because they consistently beat the S&P 500 on a long-term basis. Not because they're based on the exact same Nobel Prize-winning model Wall Street's top wealth managers use. Not because you don't need any fancy algorithms to rebalance your portfolio. And not because Bogle calls industry insiders casino "croupiers" because they skim a third of your market returns off the top, leaving you leftover crumbs.
The more you trade at Wall Street's casino, the richer your broker gets.
Listen closely: The No. 1 reason Wall Street, fund insiders and your stock broker hate our Lazy Portfolios strategy is simple: They don't make money unless you buy, sell and trade. No commissions. No fees. They can't get rich, or richer, unless you're playing at their rigged casino, where the house always wins.
Since my days at Morgan Stanley it's been obvious that Wall Street gets rich on "the action," on all the hot trading going in their casinos. More commissions and fees mean they can skim off America's retirement money. Want hard evidence? In the decade ending in 2010, Wall Street's stock market lost an inflation-adjusted 20% of America's retirement money. Your money. So yes, Wall Street brokers and other insiders hate Lazy Portfolios. They want business as usual.
Several years ago I started tracking the best portfolios in America: Simple portfolios used by Nobel Prize winners, multi-millionaires, conservative institutional fund managers, neuro-economists and average Main Street investors.
We also found solid examples in popular books and publications like "The Coffeehouse Investor," "Motley Fool Investment Guide," "Investing for Dummies," "The Idiot's Guide to Investing," "The Gone Fishin' Portfolio," even "Dilbert and the Way of the Weasel." All winners.
Take a look at Farrell's Lazy Portfolios page, including total returns for eight great portfolios.
Early on we discovered something amazing and brilliant. All these winners were saying the exact same thing: All you need is a simple, well-diversified portfolio of between three and 11 low-cost, no-load index funds to create a long-term portfolio that wins in bear and bull markets. And you do it with no market timing, no trading, no commissions. Lazy Portfolios are that simple.
What about the thousands of other stocks, bonds and mutual funds being hustled by brokers? Forget them! But don't you need an adviser? No. As personal finance guru Jane Bryant Quinn put it in her classic, "Making the Most of Your Money": "Most of us don't need professional planners. We don't even need a full-scale plan. Conservative money management isn't hard. To be your own guru, you need only a list of objectives, a few simple financial products, realistic investment expectations, a time frame that gives your investments time to work out, and a well-tempered humbug detector, to keep you from falling for rascally sales pitches. Don't put off decisions for fear you're not making the best choice in every circumstance. Often, there isn't a 'best' choice. Any one of several will work."
Follow six simple secrets and create your own Lazy Portfolio winner:
Here's how it works: Get a feel for the eight portfolios in our Lazy Portfolios group. Track them a bit. Then use your judgment. Forget your broker and adviser. Trust yourself. Customize a portfolio that fits your needs, your age, your lifestyle. You can do it yourself. Many start with one of the eight.
Then over time, fine-tune their portfolios, rebalancing by adding new money. It really is that simple. This strategy is being used successfully by working Boomers and millionaires, young families with modest savings, college students just starting out, even a grade-school kid.
Here's what our eight Lazy Portfolio masterminds tell us are the keys to successful investing; six simple secrets help you diversify, lower risk, level-out bull/bear cycles and generate returns that beat the long-term market without having to waste your time and retirement gambling in Wall Street's casino.
Build your own Lazy Portfolios following these six secrets. You'll win, and more important, you'll have lots of time left to enjoy what really counts: your family, friends, career, sports, hobbies, living life to the fullest.
1. Being average wins. Lazy Investors win by being average. No big deals. No-Load Stocks guru Charles Carlson uses a baseball analogy: "Swing for singles." Forget hitting home runs. In "Ordinary People, Extraordinary Wealth," Ric Edelman uses this metaphor: "You're not in a horse race. You're playing horseshoes ... merely being close is good enough to win If successful investors know they can't pick the right horse, what do they do? Simple: They pick every horse." Seriously, think about it: Even if you're starting with a small portfolio of three low-cost, no-load index funds for example, one diversified across the Wilshire 5000 stock index, one across the global stock market index and one across the total bond market index you're spread across more than a thousand specific stocks and bonds in these three index funds picked by pros. They do all the picking and trading while you just buy and hold, sit quietly, never playing the casino.
2. Buy and hold. Buy and hold. Buy and hold. Warren Buffett was once asked by Bogle about his favorite holding period. "Forever," said the Sage of Omaha, the best time to sell is "never." Index funds are the perfect long-term hold. If you buy quality companies and index funds with proven long-term track records, you won't be tempted to sell when the market dips and talking heads on cable news shows freak out. Trust yourself, just do it. Remember, your most important decision is the up-front buy decision: You pick quality securities on the assumption you'll never sell! In fact, one of our Lazy Portfolios was built by an industry leader who also manages a $20 billion institutional fund. He bought Bogle's first index fund in 1976. And still has it. If you invested $10,000 in it back then it'd be worth over $200,000 today. Buy and hold works.
3. No market timing, no active trading. Never. Markets are random and unpredictable, says Wharton economist Jeremy Siegel in "Stocks for The Long-Run." Siegel researched the stock market's 120 biggest up and biggest down days between 1801 and 2001. Only 25% had a explanation. Buy-and-hold investors beat traders by big margins. The most active traders turned over their entire portfolios 258% annually. Their after-tax returns were only 11.4%. Why? Active traders lose by paying transaction costs, higher expenses, commissions, fees and taxes. In contrast, buy-and-hold investors turned their portfolios over just 2% annually for 18.5% returns, that's 50% higher.
4. Not saving 10% for your retirement? Then you're spending too much. In "The Millionaire Next Door," Tom Stanley and Bill Danko reveal the one habit all millionaires share: "Frugality: They live well below their means The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyper-consumption. Being frugal is the cornerstone of wealth-building." Simple math: Nothing saved equals nothing invested, equals nothing for retirement. Start saving at least 10% if you want to retire comfortably.
5. Forget short-term market swings. Focus on long-term retirement goals and harness the power of compounding interest. A 25-year-old investing $3,000 annually can retire with a million at 65 at 10% average returns. Start early and at 65 most of your retirement portfolio will be in the growth of your savings. For example, a 25-year-old could have a million bucks investing their $120,000 slowly over 40 years, the rest is compounded interest and appreciation. And that's just one part of the nest egg if you start early.
6. Forget stock market news. Invest lazily, then go do what you love. As the legendary Fidelity investor Peter Lynch once put it in "One Up on The Street": "If you spend more than 15 minutes a year worrying about the market, you've wasted 12 minutes." And in researching 5,000 millionaires for his book, Edelman discovered that they spend an average of about six minutes a day on personal finance. They don't waste time watching cable news, reading brokers reports, attending seminars, studying stocks tables, subscribing to newsletters, and reading financial newspapers. Just six minutes a day, the rest is precious time wasted: That leaves them 23 hours, 54 minutes every day to do what they really love. Remember, there are far more important things in life, not just a career that turns you on every day, but your loved ones, kids and parents, socializing, hobbies, movies, sports, making the world a better place, ordinary stuff, living a full life.
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