I'VE never thought that laziness could be a virtue, but when
it comes to investing, it's often advantageous. You can trade too much and
become too preoccupied with the headlines and business TV shows. It can drive
you crazy and you'll lose lots of money making bad decisions.
Or you can set up a lazy Nano portfolio, which I proposed
years ago - and forget about it. Based on my initial plan at MyPlanIQ
(link.reuters.com/qus26s), a web-based application to help manage retirement
accounts, my hypothetical Nano portfolio returned 7.4% in their tactical asset
allocation model in 2011.
In contrast, the S&P 500 posted a tiny loss for the
year.
I paid so little attention to my Nano last year that I only
knew what it returned when MyPlanIQ sent me its independent year-end tally last
week. I have no relationship with the site, nor did I ever ask them to monitor
the portfolio.
They calculated the returns and tweaked the allocations
using their own tactical asset algorithm to get better results with fewer
funds. While I hold some of the funds in my family's portfolio, I don't manage
other people's money. I'm skittish enough managing my own.
I called it Nano because it's small in composition - only
five exchange-traded/mutual funds - and modest in its aspirations. It was my
humble contribution to the world of investing - a free exercise in benign
neglect and diversification.
Here's how lazy I am: I don't try to predict the market,
world events, Federal Reserve movements or the next hot sector. In fact, I make
no predictions at all - including how my portfolio will perform this year. I
have no special skill. My Nano setup is a middle-of-the road core growth
portfolio for someone in their accumulation phase with at least 15 years to go
until retirement.
Here's what's in it:
- 20% Vanguard Total Stock Market ETF
- 20% Total International Stock Index Fund
- 20% iShares Barclays TIPS Bond
- 20% iShares Barclays Aggregate Bond.
It's all in the asset allocation
As you can see, I cover five different asset classes for
various reasons. I want to cover most stocks across the globe and some
commercial real estate companies. On the bond side, I like the Treasury
Inflation-Protected Securities (TIPS) fund and the iShares broad-based US bond
fund.
Ideally, not all of these funds will move in the same
direction, and up to 60% of the holdings are not directly correlated with
common stocks. If inflation ticks up, I have some protection in the TIPS fund.
All are among the lowest-cost passive funds in their class.
But don't take my portfolio, or any mix of funds for that
matter, as a cookie-cutter template that you don't adjust. You can customise
any portfolio to fit your age and risk tolerance. Those just starting out in a career
can amp up the stock portion. If you're over 50, consider putting more than
half of your money into the iShares funds.
Of course, my portfolio is not without risk.
If a major downturn clobbers Europe or the United States, it
will be hurting. While I recommend my Nano portfolio to nearly anyone
interested in growth, it's not suitable for everyone.
If you're close to retirement, you should have at least 60%
in bonds and TIPS. Right now, my personal mix is roughly 50% income investments
and the rest in stocks, REITs and the PIMCO Commodity Real Return Strategy
fund, a combination of commodities contracts and TIPS - my inflation hedge.
If you're extremely risk averse, you should consider the
ultra-conservative Permanent Portfolio (link.reuters.com/sus26s), which posted
an 8.3% return last year, according to MyPlanIQ. It holds 25% in gold, silver
and Swiss Francs and the remainder in Treasury securities (35%) and growth
stocks.
In any case, the allocation is the key, not what you or I
think the market will do this year. Focus on what you need to do and set your
plan in place like a heavy piece of furniture you don't plan to move for a
while - like that La-Z-Boy recliner.
- Reuters
* John Wasik is a Reuters columnist. The opinions expressed
are his own.