Review: The Lazy Person’s Guide to Investing

lazyI’ll admit to picking up this book solely because of the title. I’ll also admit that I decided to read and review this book solely because I opened it to a random page, read a paragraph, and laughed – something I basically never do with a personal finance book.

It shouldn’t be too surprising to discover that a book entitled The Lazy Person’s Guide to Investing has a very healthy dose of humor involved. Basically, the idea of the book is that if you don’t know a thing about investing and are lazy – meaning you just want to put your money in an investment and not worry about it a bit – this book will spell out for you exactly what to do with your money.

Obviously, this leaves me wondering if the investment advice in here is worth its salt. Should you just take the investment advice straight out of a book and apply it without thinking? Is the humor in this book just an added bonus, or sugar to make the bad medicine go down? Let’s dig in and investigate.

A Long Look At The Lazy Person’s Guide to Investing

This book is the product of Paul Farrell’s columns at MarketWatch.com, where he talks in a breezy tone about lazy investments – in other words, the types of investments that you make and then sit on until you need them. Eventually, after describing many of these, he held a contest where he had readers select the best lazy portfolios of all, and that provided the nucleus for the book.

Part 1. The Contest Winners

So which investments won that contest? Part 1 reveals the big three winners.

1. The Couch Potato Portfolio Is Microwaveable
The winner is about as easy as can be: 50% Vanguard 500, 50% Vanguard Total Bond Market Index. That’s it. Put half your money into one, half your money into the other, and just sit back. You might want to set up some automatic investing into both of them so they grow while you do nothing. Then, once a year, take any extra investing money you have and put it into whichever one has a lower balance. That’s it. And it has historically returned over 10% with only very rare down years (even 2001, which was atrocious for stocks, saw this portfolio only down about 2%).

2. The World-Famous Coffeehouse Portfolio
This portfolio is rather more complicated than the first one, as it has seven funds in it (all Vanguard funds), but the same idea still applies: buy these index funds, sit back, and just put money into the lowest one every once in a while. This portfolio was designed intentionally to ride through a down stock market, so if you’re feeling queasy about a down market, this is a good one to choose.

3. Dr. Bernstein’s No-Brainer Portfolio
This is a slightly more complicated one yet, including nine index funds. This one was actually submitted by William Bernstein, the author of one of my favorite books, The Four Pillars of Investing. Again, all nine funds are Vanguard funds, which simplifies things even more as it makes Vanguard the one place to go to invest. This one had the best return of the three winning funds.

4. A Challenger Jumps Into The Ring! Scores On Points
This final chapter basically suggests that as long as you buy at least four different no-load, low cost index funds that are investing in different things, you’ll be just fine. Buy one large cap stock fund, one small cap stock fund, one international stock fund, and one bond fund, keep them all in balance (buy equal amounts of each and occasionally dump some extra cash into the smallest one), and you’ll be perfectly fine no matter what the stock market does.

Part 2. Recess Fun: Testing The Six Laziest Strategies

This portion of the book focuses on the six principles that make these lazy portfolios work. Actually, following these six principles would likely make any investment work, even if it’s putting cash in a high-yield savings account.

5. Strategy One: Zero Timing Wins
Never make a choice to buy or sell stocks based on what the stock market is doing. If you can’t stand that volatility and feel like you must move your money, be willing to accept losses or else realize your weakness and invest elsewhere. Market timing doesn’t work because the stock market is too unpredictable on a day-to-day basis for the average investor.

6. Strategy Two: Frugal Saving Wins
This is the one thing I love to see in a book about investing. Frugality is a major key to a winning investment strategy. Think about it this way. Let’s say you have $100 to invest each month. Then, you start cooking at home and reduce your food bill by $100. Suddenly, you have $200 to invest each month. There is no investment strategy on earth that can beat that kind of return. Living frugal and spending less than you earn is the way to get ahead with your investments, no matter how you invest.

7. Strategy Three: Compounding Wins
Each year you’re invested, your money goes up by a certain percentage. Thus, the more years you’re invested, the more cash you have at the end. The earlier you start, the more years you can invest. Thus, start your investing now, not later. Of course, you should make sure that you have no high interest debts and that you have a bit of cash reserves for an emergency first, but the earlier you start investing, the greater your gains will be over the long haul.

8. Strategy Four: Asset Allocation Wins
If you have all of your money in one single investment, it becomes a coin flip – everything you have is riding on whether that investment goes up or goes down. How can you fix that? Put your money in a lot of different investments, so that if one goes down, it doesn’t necessarily spell doom for you.

9. Strategy Five: Buy And Hold Wins
Once you start investing, don’t keep moving things around, because you’ll get eaten alive by fees (and potentially by taxes, too). Instead, invest and just sit on it until you’re ready to utilize the investment. Just let it ride and don’t waste your gains on fees and short term capital gains taxes.

10. Strategy Six: Do-It-Yourself Wins
Much like with the buy-and-hold strategy, it’s a mistake to pay others to execute very simple investments for you. Just do it yourself. It’s very easy to do online – get an account with Vanguard and start your investing immediately, cutting out the stockbroker in the middle who does nothing but prey on your gains.

Part 3. Six More Boring, Lazy Portfolios For America

It’s largely unnecessary at this point to recite these six portfolios here – suffice it to say that they’re basically different selections of index funds. This is a great section for people who like to follow exact recipes and worth reading to get the basic principles reinforced, but it basically boils down to buying a diversity of index funds and keeping them in balance. Again, almost all of these funds stick with Vanguard funds – why? Vanguard’s focus is on index funds, which means that the costs of their funds are really, really low.

Part 4. Adventures Outside The (Vanguard) Box

17. The Care And Feeding Of Your 401(k) Plan
The number one thing you can do if you have a 401(k) available to you is max it out, especially if there is employee matching available to you. Beyond that, it’s basically gravy – the tax benefits and the employee matching already make a 401(k) pretty much the best option you can get. Just select a small number of funds available to you to diversify with, or pick a “target retirement” fund that does the diversifying for you, then just sit back and let it be.

18. Happy Hybrids: One Fund Mini-Portfolios
What about those “target retirement” funds? Are they really worthwhile? If you’re truly lazy and want to invest in just one fund, they’re fine, but they’ll cost you. Many of them are combinations of other funds with an extra management fee tacked on the top, plus they’re actively managed so they might make you incur some taxes. In a 401(k) or a Roth IRA, they’re fine – otherwise, pass on them.

19. The ETF Zoo: Spiders, Qubes, Diamonds, Webs, Vipers
If you have an account with a stock brokerage and some free trades, these are great ways to invest. However, if you’re paying for the trade, you’re better off just getting an account with Vanguard or Fidelity and buying the very similar index funds.

20. DRIP-DRIP-DRIPping With No-Load Stocks
DRIPs are a very solid idea provided that you believe in the company you’re investing (DRIPs, for those unaware, are dividend reinvestment plans – if you buy one share in a company and then invest a small amount regularly, you can keep buying shares in that company for rather low fees). However, a few DRIP plans have high fees (if it’s more than 1%, back away) and by themselves they’re not diversified (owning one company’s stock sets you up for an Enron-type disaster), so you have to have several DRIPs to be secure.

21. You Wanna Be The Next Super-Mario?
What if you want to day trade or manage your own portfolio in detail? You can do it if you want, but it’s not really a good task for the lazy person as it requires a lot of diligence. Plus, it’s very easy to be eaten alive by trading fees this way.

22. The Superpowered Zero-Funds Portfolio
Another option for your money is to invest in yourself by either self-improvement or by using that cash to start a business. However, entrepreneurship generally doesn’t mix with laziness, so this isn’t a good option unless you have a lot of personal initiative.

23. Lazy Portfolios For Not-So-Lazy Kids
The younger your child is, the more effective your financial investment will be. It doesn’t really matter what the investment is – start when they’re very young and let the power of compound interest work for you. But the best investment you can make for your child is time – spend time with your child and foster some character in him or her.

Part 5. When Laziness Fails You And You’re Itchin’ For Some Action

24. Sizzle.. Fuzz… That’s Your Brain Frying On A Hot Stock
If you get a hot stock tip, don’t follow up on it, period. Do whatever it takes to not think about it. Taking a chunk of your portfolio and dumping it into some random stock tip will usually do little more than leave you holding the bag with some big losses.

25. Plan B: Investors Learn To Live With Two Brains And A Split Personality
If you absolutely must invest in individual stocks, make a sandbox for them. Allot a certain percentage of your overall portfolio for individual stock investments. That way, if you incur some losses (and you inevitably will hit some big ones with individual investing), it doesn’t destroy all of your diligent investing.

Buy or Don’t Buy?

If you’re the type of person who is basically uninterested or simply too lazy to learn about investing, this is probably the best choice for an investment book for you. The ideas and investments suggested inside are very, very simple to follow and they’re all of the “sit back and don’t worry about it” variety. Better yet, they make a lot of sense – the book is actually passing along pretty good advice. It’s also written in a breezy tone and with a good sense of humor. If this all appeals to you, pick up this book and read it, especially the first part.

However, if you actually want to really understand your investments and why you’re investing in them, there are many other investment books out there that can help you learn about investments in much more detail; I recommend starting with The Bogleheads’ Guide To Investing, which I found quite impressive.

If you have money you want to invest, but investing bores you and you want a no-hassle recipe to follow, this book will provide a few good ones for you. It’s also written in a pretty fun tone and is easy to put down and pick back up whenever you want. If that sounds appealing, definitely buy this book.

The Lazy Person’s Guide to Investing is the forty-fourth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

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12 thoughts on “Review: The Lazy Person’s Guide to Investing

  1. Mrs. Micah says:

    Great! I want to start small with my investing and not have to pay too much attention to it. I’m hoping to learn more as the years go on, but I want to begin somewhere. This book sounds perfect. :-)

    Thanks for the review, Trent! I’m going to see if my library has it. Hopefully that’ll even save me the price, until I’m sure it’s for me.

  2. Nice round up Trent! This is one of the earliest books we read when we were about to start our investing. We liked it immensely, gives us a very simplistic model about investing. Consequently it also helped in framing our investing guidelines which has stood us in good stead till date.

  3. Anna says:

    Thanks for this review, Trent. I’m still working on paying down my debt, but I know that when I start investing, I won’t want to pay too much attention to it. This book sounds like a good way to get started. :)

  4. Paramveer Singh says:

    Hey, I live in a country (India) that doesn’t seem to have the concept of no-load MFs. Everything I see has some load – at least for the common man. You do have no load funds if you have larger amounts to invest (in the range of 500k USD)

    I know you keep recommending no load funds here, so I was wondering: Would you advise me to pick the lowest load funds of all? Or is it slightly more complicated than that?

  5. Dave says:

    Paramveer,
    Have you tried looking into some of the funds mentioned, namely Vanguard?
    Typically, load funds perform on par with their no-load peers, but charge you the load for the privelege. So yes, if you only have load funds to choose from, go with the lowest you can. It’s really not more complicated than that.
    Also, have you considered ETF’s? You pay a brokerage fee to trade them, but no loads.

  6. Ryan says:

    Very good review.

    My favorite portfolio is the total stock market, total int’l stock, total bond market, money market (for emergency fund). That’s a little more well rounded (includes some small and mid cap stocks and adds int’ls) and it doesn’t try to outsmart the market by adding value indexes, etc.

    http://www.diehards.org is the best for this kind of investing.

  7. finance girl says:

    wrt #19, eh? Many ETFs don’t have an index fund equivalent and ETFs have lower expense ratios (most). It definitely makes sense to go the ETF route if 1) it’s a one time lump sum purchase (e.g. 3k or more), and 2) if you are going to be keeping it 5+ years.

    trade commissions should only be around $10 (otherwise you need to shop around for a new brokerage!) so

  8. LTruslow says:

    This is an excellent book. Dr. Paul Farrell advice on the markets and investing can be found weekly on marketwatch.com

  9. Katy says:

    And He has a free pdf file called ‘the Millionaire Meditation’. Google it. Wonderful!

  10. anjeee says:

    You wrote:
    “7. Strategy Three: Compounding Wins
    Each year you’re invested, your money goes up by a certain percentage.”

    Not only is that not true (as every one who lost a lot of money this year knows), but it is also irresponsible to say to your readers. Your money is NOT guaranteed to go up each year – there ARE no guarantees in the market! Some years it goes DOWN.

  11. MoneyEnergy says:

    I can attest to the lazy power of DRIPping. I have about 17 different DRIPs – I would advise only getting involved in fee-free DRIPs. That’s the whole point. If you have to pay a fee for each reinvestment, you might as well go the regular broker route, because those will add up over time.

    At first I even thought (from the title in your tweet alone) that you were referring to one of Derek Foster’s books on DRIPs. I haven’t read the one you mention here.

  12. almost there says:

    I just finished reading this book. I got scared off by my 25 years investing in an IRA has yielded a negative balance. I hope to get back into a couch potato portfolio. I did one of the things relating to compound investing. I set up a roth IRA for my son. This year it will have 25K invested and that is my gift to him. So, from 21-70 we hope it does great. vanguard 500 index fund. Of course it is down now.

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