How to Build a Lazy Portfolio With Index Funds

If you want to grow your wealth but can’t spend hours analyzing stocks, a lazy portfolio may be right for you. Such a portfolio is made up of index funds and exchange-traded funds (ETFs) that track major stock indexes, bonds, and other asset classes.

With a lazy portfolio, you don’t have to spend time picking and choosing individual investments. Instead, you can simply buy and hold a basket of index funds or ETFs that track different asset classes. This approach is often called passive investing.

Below, we go into detail on how to build a lazy portfolio. We also provide some examples of pre-made lazy portfolios that you can consider investing in.

What is a lazy portfolio?

A lazy portfolio is a type of investment strategy that involves investing in a small number of asset classes with the goal of achieving average market returns. The lazy portfolio approach is often used by investors who want to minimize the time and effort required to manage their investments.

Lazy portfolios typically invest in a mix of stocks, bonds, and cash. The exact mix of asset classes will vary depending on the goals and objectives of the investor. 

For example, an investor aiming for long-term growth may have a different portfolio mix than an investor looking for income.

Lazy portfolios are often compared to more complex and active investment strategies. While lazy portfolios may not outperform the market in any given year, they typically require less time and effort to maintain.

How does a lazy portfolio work?

Based on a set it and forget it, model, lazy portfolios are designed to be low maintenance. The goal is to achieve average market returns with minimal effort.

So how does this work?

The most common approach is automating investments. Basically, you set up regular contributions to an investment account and let the money ride. It could be a 401(k), IRA, or even a brokerage account.

The key is to make sure the account is diversified. That means investing in a mix of stocks, bonds, and cash equivalents.

Rebalancing the portfolio is a must-do in this regard. Meanwhile, tax-loss harvesting is imperative for taxable brokerage accounts. In this strategy, you sell losing investments to offset any gains. It can help lower your tax bill come April 15th.

Most lazy portfolios have an index investing strategy. It relies on setting up a few low-cost index funds to get exposure to different asset classes. For example, the S&P 500 index tracks large U.S. companies. The Russell 2000 index invests in small-cap stocks. Meanwhile, the MSCI EAFE Index covers international stocks.

Bond indexes include the Barclays U.S. Aggregate Bond Index and the Bloomberg Barclays U.S. Treasury Index.

The lazy portfolio approach is not for everyone. Index funds have fees. They also have tracking errors, which is the difference between the fund’s performance and the index it tracks.

Lazy portfolios also don’t take into account an investor’s personal circumstances. That includes factors such as age, risk tolerance, and investment goals.

The good news is there are plenty of resources out there to help you get started. Vanguard, Fidelity, and Charles Schwab all have target-date funds. These funds automatically rebalance and grow more conservative as you approach retirement.

Robo-advisors such as Wealthfront and Betterment can also help build and manage a lazy portfolio. They take into account an investor’s circumstances and create a personalized portfolio.

Example of a lazy portfolio

Let’s explain this concept with an example.

Suppose you have $100,000 to invest. You decide to split it evenly into five different investments: stocks, bonds, real estate, gold, and cash. Each year, you rebalance your portfolio so that each asset continues to make up one-fifth of your total investment.

Your portfolio may look like this:

  • 20% Vanguard Total Stock Market Index Fund (VTSAX)
  • 20% Vanguard Total Bond Index Fund (VBTLX)
  • 20% Vanguard REIT Index Fund (VGSIX)
  • 20% SPDR Gold Trust (GLD)
  • 20% Fidelity Cash Reserves (FDIC)

The key is to diversify and keep it simple. This portfolio is composed of low-cost index funds that aim to track the performance of their respective markets. It’s a “lazy” portfolio because it only requires a few minutes of work each year to rebalance.

If you choose index funds that are exposed to international and domestic stocks, bonds, and real estate, then you will have a well-rounded portfolio that can help you reach your financial goals.

Depending on your age, risk tolerance, and investment goals, you may want to adjust the asset allocation of your lazy portfolio. For example, if you are retired or have a low-risk tolerance, you may want to have a higher percentage of your portfolio in bonds and cash.

On the other hand, if you are young and have a high-risk tolerance, invest a higher percentage of your portfolio in stocks.

Popular lazy portfolios

People who don’t want to build lazy portfolios from scratch can work with pe-built models. Here are some popular lazy portfolios that have been published by financial experts.

The Bogleheads 3-fund portfolio

In this portfolio, investors put their money into three index funds that track U.S. stocks, foreign stocks, and bonds. The portfolio is named after John Bogle, the founder of Vanguard Group and a pioneer in index investing.

Such a portfolio only has basic asset classes, including domestic stock index funds and international stock index funds. The notable benefits of this model include the following:

  • Diversification: By investing in more than 10,000 securities, the Bogleheads 3-Fund Portfolio provides significant diversification.
  • Low Costs: The Vanguard funds that make up this portfolio have very low expense ratios, which helps keep the total ownership costs down.
  • Simplicity: The portfolio is easy to understand and implement, making it a good choice for beginner investors.

Ray Dalio all weather portfolio

The Ray Dalio All Weather Portfolio is a portfolio designed to perform well in all market conditions. In addition, it is a medium-risk portfolio that you can implement with 5 ETFs.

The portfolio is exposed to 15% commodities and 30% on stocks. The portfolio has gotten a 7.23% annual return in the past three decades.

Thus, this portfolio is suitable for investors looking to have consistent returns and are not worried about short-term market fluctuations.

Coffeehouse portfolio

The Coffeehouse Portfolio was created to give beginning investors a simple, easy-to-follow guide to investing in coffeehouses.

Being a 60% stock portfolio, the Coffeehouse Portfolio is suitable for investors who are seeking moderate to high growth potential and are willing to accept higher risk in exchange for the possibility of higher returns.

The portfolio is rebalanced quarterly to ensure that it remains diversified and aligned with the original investment strategy.

How to create a lazy portfolio?

Here are the steps to create a lazy portfolio.

Step 1: Invest in index funds

The first step is to invest in index funds. Index funds are a type of mutual fund that tracks a specific market index, such as the S&P 500.

You need to decide how much you want to invest in each index fund. This will be based on your investment goals and risk tolerance.

For instance, if you are investing for retirement, you may want to have a higher percentage of your portfolio in stocks than if you were investing for a short-term goal.

Step 2: Create a systematic investment plan

A SIP is a systematic investment plan. It means that you invest a fixed amount of money in your chosen index funds regularly.

For example, you may decide to invest $500 per month in your lazy portfolio.

Step 3: Rebalance your portfolio

You will need to rebalance your portfolio periodically. It means selling some of the assets that have increased in value and buying more of the assets that have decreased in value.

Suppose you have a portfolio that is 60% stocks and 40% bonds. Over time, the stock market will go up and down.

If the stock market goes up, your portfolio will become more heavily weighted in stocks because the value of your stocks has gone up.

You will need to sell some of your stocks and buy more bonds to get back to your original asset allocation.

The opposite is true if the stock market goes down. How often you rebalance your portfolio will depend on your goals and risk tolerance.

Step 4: Opt for no-load funds

No-load funds are mutual funds that do not have a sales charge. So, you can buy and sell these funds without paying a fee.

Load funds often have high fees, which can affect your investment returns.

Step 5: Review your portfolio annually

Even though you have a lazy portfolio, you should review it at least once a year. It will help ensure that your investment mix aligns with your goals and risk tolerance.

You may also need to adjust your systematic investment plan if you have any changes in your financial situation.

For example, you may need to increase your investment if you get a raise at work.


A lazy portfolio can be just what some investors need to get their feet wet in investing without committing too much time or energy. 

However, it’s important to remember that you will still need to monitor your investments periodically to ensure that they are performing in line with your investment goals.

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