Keeping It Simple

December 3, 2008
Special Feature

If the stock market has you lying awake at night, you’re investing too much emotional energy in it.

If the stock market has you lying awake at night, you’re investing too much emotional energy in it. According to investment legend Peter Lynch, if you spend more than 15 minutes a year worrying about the market, you’re wasting 12 minutes. But how not to worry when the market is acting like a child on a trampoline?

The answer, according to Paul Farrell, senior investment columnist at SmartMoney magazine, is to create a “Lazy Portfolio” of a few broad-based low-cost index funds and then leave it alone. At the Lazy Portfolio Web page (www.marketwatch.com/LazyPortfolio), you’ll find eight sample portfolios, all of which have beaten the S&P 500 over the past 12 months. Granted, doing better than the S&P means that the portfolios didn’t lose as much as the 500 index, which is down about 37% in the past year.

A quick look at the make-up of the Lazy Portfolios reveals that the secret is—no surprise here—diversification. The portfolios include not only a selection of both domestic and international equity funds, all of which are well under water, but also a healthy dose of bond funds, which have turned a modest profit. For example, it’s a 40% stake in a short-term bond fund that has helped neurologist and financial advisor William Bernstein’s Smart Money portfolio to beat the S&P500 by about 10 percentage points. And like all of the investments in the Lazy Portfolios, Bernstein’s picks are low-cost funds from Vanguard, which is known for its penny-pinching expense ratios.