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Fixed Income Stock Strategy Morningstar Funds Market - DOC

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					Question Of The Month – August, 2008

            Why Use A “Lazy” Investment “Portfolio”?

Paul Farrell, a columnist for Marketwatch.com and author of Lazy Person’s Guide
To Investing, has been telling us about the advantages of Lazy Portfolios using index
funds. He says that he wrote his book for “procrastinators, the financially
challenged and everyone who worries about dealing with their money.” Farrell says
that most people think that if you want to make big money on Wall Street, you have
to buy and sell the right stocks at the right time.

The “Lazy Portfolios” that Farrell writes about were developed by a number of
individuals ranging from a Second Grade student to a portfolio developed by Ted
Aronson, a professional who manages about $25 billion in institutional money but
prefers to keep his family money in his passive “Lazy Porfolio.” Why not? His
passive portfolio has averaged an annual 16.37% return the past five years.

Farrell says “If you don't have a Lazy Portfolio, now is the time to build your own
using the eight models below. And remember, back in the bad old days of the 2000-
2002 bear-recession, one of them, the Coffeehouse, was killing the S&P 500 by 15
percentage points each of the three years -- more proof passive investing beats
action. You also don't need a lot of funds with this strategy. That's important if
you're young, new at the game or just don't have a lot of money to invest.”

Here is Farrell’s comparison of the bottom lines of all eight Lazy Portfolios.

                                                     3-year            5-year
                        Equity   No. of    1-year
Portfolio                                            annualized        annualized
                        %        funds     return
                                                     return            return
Second Grader's
                        90       3         -2.67%    11.06%            13.18%
Starter
Aronson Family
                        80       11        2.77      13.83             16.37
Taxable
Yale U's
                        70       6         -0.35     9.96              12.54
Unconventional
Margaritaville          67       3         2.78      10.80             12.42
FundAdvice Ultimate
                    60           11        2.02      10.66             12.44
Buy & Hold
Dr. Bernstein's No-
                        75       4         -2.79     9.58              11.74
Brainer
Dr. Bernstein's         60       9         -1.79     8.57              10.57
Smart Money
Coffeehouse            60         7          -2.57     7.66           10.09
S&P 500                100        n/a        -6.70     7.57           9.77
Source: Morningstar Inc. Data as of June 2.

Second grader's starter portfolio
Got less than $10,000? Start with a portfolio like Kevin Roth's three-funder. Kevin
put his together as an eight-year-old second-grader. He takes a long view and has
90% in equities. He beat the S&P 500 with average 13.18% returns over last five
years.
                                                     3-year          5-year
                                       1-year
Fund                        Allocation               annualized      annualized
                                       return
                                                     return          return
Vanguard Total Stock
                            60%           -6.34%     8.20%           10.74%
Market Index
Vanguard Total
International Stock         30%           1.64       19.11           21.21
Index
Vanguard Total Bond
                            10%           6.40       4.08            3.67
Market Index
Portfolio                   100%          -2.67      11.06           13.18


Margaritaville portfolio
Scott Burns, a popular Dallas Morning News columnist, has a three-fund portfolio
that also beat the S&P 500 with average five-year returns of 13.18%. Scott's
Margaritaville portfolio has a third each in foreign equities, domestic equities and
inflation-protected securities. Real simple, no timing, just rebalance annually.
                                                      3-year          5-year
                                           1-year
Fund                         Allocation               annualized      annualized
                                           return
                                                      return          return
Vanguard Inflation-
                             33.3%         13.04%     5.10%           5.31%
Protected Securities
Vanguard Total
International Stock Index 33.3%            1.64       19.11           21.21
VGTSX
Vanguard Total Stock         33.3%         -6.34      8.20            10.74
Market Index
Total portfolio             100%         2.78       10.80             12.42


Dr. Bernstein's No-Brainer portfolio
Paul has been tracking two portfolios from neurologist and financial adviser Dr.
William Bernstein, author of "The Four Pillars of Investing," and the “Intelligent
Asset Allocator”. Here's a four-fund portfolio from his EfficientFrontier.com Web
site:
                                                3-year              5-year
                                     1-year
Fund                    Allocation              annualized          annualized
                                     return
                                                return              return
Vanguard 500 Index      25%          -6.78%     7.44%               9.63%
Vanguard European
                        25%          -2.61      17.69               19.58
Stock Index
Vanguard Small Cap
                        25%          -8.16      9.10                14.08
Index
Vanguard Total Bond
                        25%          6.40       4.08                3.67
Market Index
Total Portfolio         100%         -2.79      9.58                11.74


Yale U. Unconventional portfolio
David Swensen is the megasuccessful manager of the Yale Endowment Fund. His
best selling book, "Unconventional Success," offered a six-fund portfolio. In spite of
a heavy 20% in real estate, he's still beating the S&P 500, averaging over 12% the
past five years.
                                                  3-year             5-year
                                     1-year
Fund                      Allocation              annualized         annualized
                                     return
                                                  return             return
Vanguard Inflation-
                          15%         13.04%      5.10%              5.31%
Protected Securities
Vanguard REIT Index       20%         -12.37      10.54              16.94
Vanguard Long-Term
                          15%         9.00        3.49               3.72
Treasury Index
Vanguard Emerging
                          5%          21.26       31.92              33.61
Markets Stock Index
Vanguard Developed
                          15%           -2.26      16.74              19.30
Markets Index
Vanguard Total Stock
                          30%           -6.34      8.20               10.74
Market Index
Total portfolio           100%          -0.35      9.96               12.54


Coffeehouse portfolio
Bill Schultheis was a long-time Smith Barney broker before becoming a financial
adviser in the nineties. Jack Bogle, founder of the Vanguard Group mutual fund
company, says that Schultheis "Coffeehouse Investor" is the No. 1 book he
recommends to new investors. As with the Yale portfolio, the Coffeehouse Lazy
portfolio was hurt by housing exposure. Still he's making a comeback and beating
the S&P 500.
                                                   3-year             5-year
                                         1-year
Fund                       Allocation              annualized         annualized
                                         return
                                                   return             return
Vanguard 500 Index         10%           -6.78%    7.44%              9.63%
Vanguard REIT Index        10%           -12.37    10.54              16.94
Vanguard Small Cap
                           10%           -8.16     9.10               14.08
Index
Vanguard Small Cap
                           10%           -12.27    6.86               13.41
Value Index
Vanguard Total Bond
                           40%           6.40      4.08               3.67
Market Index
Vanguard Total
International Stock        10%           1.64      19.11              21.21
Index
Vanguard Value Index       10%           -13.33    7.20               10.95
Total portfolio            100%          -2.57     7.66               10.09


Dr. Bernstein's Smart Money portfolio
Here's Bernstein's nine-fund portfolio, first seen in his Smart Money column years
ago. It's still a winner. His investment strategy totally reflects his long-term
perspective on life, his practice and his writings, especially his fascinating new book
about the history and impact of global commerce, "A Splendid Exchange: How
Trade Shaped the World." And, yes, his passive portfolio regularly outperforms the
market.
                                                   3-year           5-year
                                         1-year
Fund                        Allocation             annualized       annualized
                                         return
                                                   return           return
Vanguard Emerging
                            5%           21.26%    31.92%           33.61%
Markets Stock Index
Vanguard European
                            5%           -2.61     17.69            19.58
Stock Index
Vanguard Pacific Stock
                            5%           -1.47     14.80            18.95
Index
Vanguard REIT Index         5%           -12.37    10.54            16.94
Vanguard Short-Term
Investment Grade Index      40%          4.72      4.32             3.41
VFSTX
Vanguard Small Cap
                            5%           -8.16     9.10             14.08
Index
Vanguard Small Cap
                            10%          -12.27    6.86             13.41
Value Index
Vanguard Total Stock
                            15%          -6.34     8.20             10.74
Market Index
Vanguard Value Index        10%          -13.33    7.20             10.95
Total portfolio             100%         -1.79     8.57             10.57


Aronson Family's Taxable portfolio
Ted Aronson's AJO Partners manages $25 billion in institutional assets. He's one of
America's rare money managers who is honest enough to tell you where his own
family's money is invested. It's worth him bragging about, averaging a hot-hand
16.37% for his 11-fund portfolio the past five years compared with just 9.77% for
the S&P 500.
                                                  3-year           5-year
                                      1-year
Fund                       Allocation             annualized       annualized
                                      return
                                                  return           return
Vanguard 500 Index
                           15%           -6.78%   7.44%            9.63%
VFINX
Vanguard Emerging          20%           21.26    31.92            33.61
Markets Stock Index
VEIEX
Vanguard European
                          5%           -2.61    17.69             19.58
Stock Index VEURX
Vanguard Extended
                          10%          -6.46    10.02             14.34
Market Index VEXMX
Vanguard High-Yield
                          5%           -1.73    4.55              5.96
Corporate VWEHX
Vanguard Inflation-
Protected Securities      10%          13.04    5.10              5.31
VIPSX
Vanguard Long-Term
                          5%           9.00     3.49              3.72
U.S. Treasury VUSTX
Vanguard Pacific Stock
                          15%          -1.47    14.80             18.95
Index VPACX
Vanguard Small Cap
                          5%           -4.11    11.17             14.53
Growth VISGX
Vanguard Small Cap
                          5%           -12.27   6.86              13.41
Value Index VISVX
Vanguard Total Stock
                          5%           -6.34    8.20              10.74
Market Index VTSMX
Total portfolio           100%         2.77     13.83             16.37


FundAdvice.com's Ultimate Buy and Hold portfolio
The FundAdvice.com's 11-fund Ultimate Buy and Hold portfolio has also been
beating the S&P 500 across the board, generating returns over 12% on a five-year
basis. And doing it with a 60/40 asset allocation, equities to fixed income.
                                                3-year            5-year
                                       1-year
Fund                      Allocation            annualized        annualized
                                       return
                                                return            return
Vanguard 500 Index        6%           -6.78%   7.44%             9.63%
Vanguard Value Index      6%           -13.33   7.20              10.95
Vanguard Small Cap
                          6%           -8.16    9.10              14.08
Index
Vanguard Small Cap
                          6%           -12.27   6.86              13.41
Value Index
Vanguard REIT Index         6%          -12.37      10.54              16.94
Vanguard Emerging
                            6%          21.26       31.92              33.61
Markets Stock Index
Vanguard Developed
                            12%         -2.26       16.74              19.30
Markets Index
Vanguard International
                            12%         0.57        19.21              22.09
Value
Vanguard Short-term
                            12%         8.05        4.73               3.27
Treasury
Vanguard Intermediate-
                            20%         10.54       4.92               3.68
term Treasury
Vanguard Inflation-
                            8%          13.04       5.10               5.31
Protected Securities
Total Portfolio             100%        2.02        10.66              12.44


Farrell says “If you're one of America's 95 million passive investors worried about
the economy and the markets sinking further in 2008 and perhaps a bigger
meltdown coming sometime around 2011-2012 before the end of the next
presidential term ... and if you're worried about a decade-long stagflation ... forget
market timing and active trading, you'll lose money. Preserve your capital.
If you want long-term results, build your own balanced portfolio.” If you’re
interested in a more detailed analysis of how the "Lazy Portfolios" work, take a
look at his " Lazy Person's Guide to Investing."

				
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