It also means that the fund does not have capital gains distributions and associated taxes. On the other hand, a low turnover ratio means that the fund probably follows a buy-and-hold strategy and thus does not have significant trading costs. Funds with a high turnover ratio engage in more trading, resulting in higher costs and taxes. Turnover ratio is the percentage of a fund’s holdings that are replaced in the past year. Lastly, passive index funds usually have a low turnover ratio. Whatever future returns the markets are generous enough to deliver, few investors will succeed in capturing 100% of those returns simply because of the high costs of investing-all those commissions, management fees, investment expenses, yes, even taxes-so pare them to the bone. It is worth quoting John Bogle, the father of passive index investing and founder of Vanguard about fund expense ratios at this point:įirst, in investing, realize that you get what you don’t pay for. Funds with higher expense ratios have lower excess returns. Empirical research shows a correlation between expense ratios and total returns. In addition, investors should know that expense ratios affect returns. This fact means that an investor captures almost the complete total return of the index fund without a significant cost drag. The expense ratios are usually less than 0.20%. Passively managed index funds are low-cost. The two funds own more than 4,100 stocks. For example, the Vanguard Total Stock Market ETF (VTI) or its mutual fund counterpart, the Vanguard Total Stock Market Index Fund (VTSMX), owns almost all the stocks in the CRSP US Total Market Index. Index funds are inherently diversified since they own a basket of stocks. Index Funds are the Building Blocksīy using index funds, an investor takes advantage of the pros of a lazy portfolio, including diversification, low expense ratios, and low portfolio turnover. An investor only needs to set the asset allocation and periodically rebalance it to return the lazy portfolio to the target asset allocation. This fact points to one of the primary benefits, simplicity. For example, an investor desiring a three-fund portfolio can choose the basic Bogleheads 3 Fund Portfolio, the Margarita Portfolio, or other variations.Īn investor does not need to buy and sell often when managing a lazy portfolio. The fundamental difference between the portfolios is the number of funds and asset allocations. The basic lazy portfolios are comprised of two funds, three funds, or four funds, but some contain more. Lazy portfolios commonly own stocks, bonds, real estate investment trusts (REITs), gold, and other assets. They are typically compromised of a handful of passive index funds, either mutual funds or exchange-traded funds (ETFs). The award winning Stock Rover platform includes watchlists, portfolio integration, portfolio rebalancing, e-mail and text alerts, future income forecasts, etc.Ī lazy portfolio is a basket of funds that take little effort to maintain. You can get access up to 650+ metrics and financial data. StockRover is one of the best stock, ETF, and mutual fund screeners and analysis tools. Investors should consider a lazy portfolio that has stood the test of time. In this case, an investor follows a buy-and-hold investment strategy, and the portfolio is essentially on autopilot. It’s quite easy to check the asset allocation, rebalance and wait for the next six or 12 months to check again.īut how does an investor get to this point, where a retirement account performs decently in up or down markets with less volatility and thus less worry. However, this is not a daily or weekly activity but a bi-annual or annual activity. Instead, investors should periodically check their retirement portfolios. This activity would become a full-time job akin to day trading and introduce needless complexity. Most investors do not want to continuously monitor their retirement portfolio and make changes. A retirement portfolio should be simple, permitting an investor to be lazy. The KISS principle applies to many things in life, and managing your retirement portfolio is one such thing. American Stocks Paying 100+ Years of Dividendsīuild a Lazy Portfolio.Dividend Growth Investing Show sub menu.
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