Is It Possible to Make Profit with a Lazy Portfolio?

by Andrew McGuinness     Jul 16, 2019

If you are considering investing but are not set on the idea of all the time and work that goes into most investment portfolios, there are other routes that you can take. An extensively diversified, thoroughly cared for portfolio is what most investors aim for in order to gain high returns.

Investors constantly keep track of where their investments are taking them, whether they are in danger of suffering insurmountable losses, whether gains have reached a point so high they may consider selling, and whether they need to switch funds from one asset to another.

A lazy portfolio, on the other hand, only involves two separate investments within your portfolio. This greatly simplifies the task of keeping track and caring for it. However, just how profitable can a lazy portfolio be when it only includes two investments? Is creating a lazy portfolio worth investing at all?

1. What is a lazy portfolio?

A lazy portfolio is one that is checked up on only once annually. An investor may create a lazy portfolio that allows this by investing their money into only two places. First, in a common stock that follows the Standard and Poor’s 500 Index (S&P 500), and second, in a stock similar to the Bloomberg Barclays US Aggregate Bond Index in order to put your money into intermediate maturity bonds.

The only thing an investor is required to do when a new year begins, is figure out the total value of their portfolio, divide this by two, and distribute this value among the intermediate maturity bond and Standard and Poor’s 500 Index.

2. Benefits

Of course, some investors are able to give the time, work, and care that a, expansively diversified portfolio filled with assets requires in order to make the very most out of its stocks and profits. They are either making a living as investors or have plenty of time on their hands for some other reason. But for most of us, this extensive amount of work is just not doable.

Despite the fact we may want to become investors and create a portfolio, some of us have busy lives apart from these investments and cannot afford to care for them as much as those pursuing trading as a career. For this reason, not all portfolios have to be incredibly time-consuming. Rather than having a vastly diversified portfolio, there are other options.

3. What results does this provide an investor with?

If we were to look at the results of a lazy portfolio at the beginning of the year, here is what it would look like. We have taken an example of a lazy portfolio and analysed how much it grew over the span of one year, and the rate of return it provided.

The average rate of return each year for the Standard and Poor’s 500 Index has actually stayed at about 9.8% for the past nine decades despite the fact there have been moments when the stocks were particularly risky. Bond indexes help to balance this risk due to the fact they are more on the conservative side when compared to other investments.

While S&P 500 will most likely beat bond indexes in terms of returns, it is also just as likely to suffer losses during a bear market. This is where bond indexes save the day by limiting the exposure to risk that S&P 500 allows.

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