How to Create a Complete “Lazy” Stock Portfolio With Just 4 Vanguard ETFs

Want a cheap, effective, and hands-off approach to investing? Give this article a read.

| More on:
Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

I might be an avid investor, but I’m not a fan of stock picking. Personally, I find it time consuming, complicated, and stressful. I’m also embarrassingly bad at it. I’ve accepted that I can’t predict or time the market nor devote the time to analyzing financial ratios and earnings calls.

For this reason, I’m a fan of “lazy” investment portfolios using exchange-traded funds (ETFs) — ones that anyone can set up within minutes, automate contributions, and check on once or twice per year. Keeping investing accessible, simple, and consistent is the key to success here.

Why a lazy portfolio?

For most investors, it is exceedingly difficult to consistently beat the market in the long run. Even professional fund managers often fail to outperform a simple index fund. Once you accept this, you can aim to match its returns with the least amount of effort and cost possible.

The goal here is to find the best ETFs that maximize exposure to the broad market and offer the lowest management expense ratios (MER). This helps reduce sources of risk that are controllable — underdiversification and high fees.

The four-fund lazy portfolio

The Canadian four-fund lazy portfolio takes 15 minutes to set up and another 15 minutes every year to re-balance. It costs 75% less in fees than a mutual fund from a financial advisor and will match the market return. It consists of four ETFs in the following allocations:

  1. A Canadian equity market ETF (20%)
  2. A U.S. equity market ETF (50%)
  3. An international developed markets ETF (20%)
  4. An international emerging markets ETF (10%)

We want to keep the Canadian portion of our portfolio overweight relative to its actual world market cap weight (3%) — anywhere from 20-30%. This is called “home-country bias.” It lowers fees and taxes, reduces volatility, and hedges against currency risk.

Keep in mind that this version is also 100% stocks, which are suitable only for investors with a high risk tolerance or a long time horizon. Other investors may want to include a 10-40% bond allocation.

Which ETFs to use?

To invest in the Canadian stock market, consider buying Vanguard FTSE Canada All Cap Index ETF (TSX:VCN). VCN holds over 200 large-, mid-, and small-cap domestic stocks for an MER of 0.05% and has $4.8 billion in AUM.

To track the U.S. market, a good bet is Vanguard US Total Market Index ETF (TSX:VUN), which tracks over 3,000 large-, mid-, and small-cap U.S. stocks for just 0.16% MER.

For international developed markets, invest in Vanguard FTSE Developed All Cap ex North America Index ETF (TSX:VIU), which holds 3,914 stocks from Japan, the U.K., France, Switzerland, Australia, Germany, etc. for a 0.20% MER.

Finally, for international emerging markets, buy Vanguard FTSE Emerging Markets All Cap Index ETF (TSX:VEE), which holds 5,446 stocks from China, Taiwan, India, Korea, Brazil, Russia, etc. for a 0.24% MER.

How do I manage this portfolio?

Once you have purchased these four ETFs in their proper allocations, you only have two tasks:

  1. Every month, deposit money into your brokerage account and purchase equal amounts of each ETF.
  2. At the start of every quarter, rebalance your portfolio by buying and selling shares until each asset is back to their original allocated percentage.

That’s it. You must resist the urge to tinker by overweighting geographies, trying to time the market, or buying hot stocks. Think of your lazy portfolio as a bar of soap — the more you handle it, the more it shrinks. Put your investment on autopilot and enjoy life!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Stocks for Beginners

Stocks for Beginners

Investing Strategies for Canadians in an Uncertain Economy

These are uncertain times, as the economy grapples with high inflation. Here are four investing strategies for the current market.

Read more »

Stocks for Beginners

How to Start Investing in a TFSA in a Down Market

Are you interested in starting a TFSA during a down market? Here are a few tips to keep in mind.

Read more »

Make a choice, path to success, sign
Stocks for Beginners

TFSA Investors: Must-Have Stock Strategies for Your Retirement

While reliable income stocks could help TFSA investors reduce their risk profile, high-growth stocks have the potential to significantly multiply…

Read more »

Happy diverse people together in the park
Stocks for Beginners

3 Stocks New Investors Should Buy Today

The stock market has been hard to gauge for the past year or so. Which stocks should new investors be…

Read more »

Various Canadian dollars in gray pants pocket
Stocks for Beginners

How to Be a Millionaire With $50 a Day 

Here is a strategy to be a millionaire with just $50 a day.

Read more »

calculate and analyze stock
Stocks for Beginners

Top TSX Stocks for Beginners in July 2022

Buying these top TSX stocks in July 2022 could help stock market beginners receive handsome returns on their investments in…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Canadian Bank Stocks After the Recent Correction?

Dividends and fairly valued Canadian bank stocks look attractive. But the macro picture could be a spoiler!

Read more »

consider the options
Stocks for Beginners

TSX Investors: These International Stocks Look Insanely Cheap

Diversification can help grow and protect your TSX stock investment portfolio. Here are two international stocks that are selling at…

Read more »