Lazy Portfolios and ETF composition (2024)

FAQs

What percentage of my portfolio should be ETFs? ›

"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."

A Lazy Portfolio is a collection of investments that requires very little maintenance. It's the typical passive investing strategy, for long-term investors, with time horizons of more than 10 years. Choose your investment style (Classic or Alternative?), pick your Lazy Portfolios and implement them with ETFs.

The current David Swensen Lazy Portfolio Sharpe ratio is 1.48.

Three-fund lazy portfolios

These usually consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market.

The 4% rule is the basis of retirement plans across the world, heralded as a 'safe' withdrawal rate from your portfolio. A few simple calculations and the 4% withdrawal rate leads to the magic number that is the lump sum you need in retirement. Voila.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

Building a lazy portfolio starts with deciding what you want it to look like, i.e. one-fund, two-fund, three-fund, etc. Remember that for lazy portfolios, less is more. So you may want to cap the number of funds you choose at five. Next, consider which funds are best suited to your needs, goals and risk tolerance.

Building Your Lazy Portfolio

The 3 funds are US stocks (total US stock market), international stocks (total international stock market), and bonds. “It really can be that simple. You can buy an ETF for each of the three funds, set it and forget it.” said Zigmont.

Disadvantages of ETFs. Although ETFs are generally cheaper than other lower-risk investment options (such as mutual funds) they are not free. ETFs are traded on the stock exchange like an individual stock, which means that investors may have to pay a real or virtual broker in order to facilitate the trade.

What is a good Sharpe ratio? A Sharpe ratio less than 1 is considered bad. From 1 to 1.99 is considered adequate/good, from 2 to 2.99 is considered very good, and greater than 3 is considered excellent. The higher a fund's Sharpe ratio, the better its returns have been relative to the amount of investment risk taken.

What is a realistic Sharpe ratio? ›

Usually, any Sharpe ratio greater than 1.0 is considered acceptable to good by investors. A ratio higher than 2.0 is rated as very good. A ratio of 3.0 or higher is considered excellent. A ratio under 1.0 is considered sub-optimal.

Now, it's worth noting that measuring Sharpe Ratios in such an absolute way — where a number above 1.0 is 'good' and a figure below 1.0 is 'bad' — can drive some errors. A single asset class, fund, or investment can have a low Sharpe Ratio — yet still increase the Sharpe Ratio of an overall portfolio.

Lazy portfolios can be a good option for investors who want to invest for the long term but don't have a lot of time to spend on their investments. They are easy to set up and maintain, and they can provide a diversified portfolio with low costs.

Ramsey's recommendation is to invest 100% of your portfolio in stocks, with no allocation to bonds or other fixed-income investments. He believes that over the long term, stocks will outperform other asset classes, and that a well-diversified stock portfolio is the best way to build wealth.

One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ). The SCHD ETF focuses on high-quality dividend stocks, which can provide stable income and potential long-term growth.

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all. Consider the two funds below.

How many ETFs are enough? The answer depends on several factors when deciding how many ETFs you should own. Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.

A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.

A good rule of thumb is to not invest in any fund with an expense ratio higher than 1% since many ETFs have expense ratios that are much lower. Also, ETFs tend to be passively managed, which keeps the management fee low.