Book Summary Preview : The Lazy Person’s Guide to Investing

The Big Idea
This book is a guide to help procrastinators, the financially challenged, and every one who worries about investing their money to create a nest egg for retirement or for sending children to college. Dr. Paul B. Farrell describes the simple no-hassle, low stress, time-saving way of successful investing in lazy portfolios that work in the background allowing most people to do more important things. This book tells the reader why he does not need a stockbroker or even a financial planner; that there is the couch potato type no-brainer easy to understand investment techniques; why the reading investor never have to pay a brokerage commission again; how the reader can use as few as two mutual funds to manage the reader’s investments and virtually forget it; and how to adjust the reader’s investments once a year in less time than it takes to microwave a potato.

Part I: The Contest Winners, America’s Three Laziest Portfolios

Chapter 1: The Couch Potato Portfolio is Microwavable
Scott Burns, a syndicated financial columnist with the Dallas Morning News, launched the Coach Potato Portfolio in 1991. Back checking into 1973, the portfolio averaged 10.29 percent annual return for the 18 year period.

The Couch Potato Portfolio achieved results with no complicated accounts; no diligent reading of the financial press; no phone calls from brokers with “opportunities”; no meetings with investment advisers demonstrating their constant supervision of accounts; and very simple tax returns.

To create a Couch Potato Portfolio, the reader investor will need only two funds in a 50-50 asset allocation that gives all the diversification through bear and bull markets:

1. (50%) Vanguard 500 Index (VFINX) is a $75 billion no-load fund that tracks the S & P 500. The market capitalization of the index includes roughly 80 percent of all US companies. The fund’s expense ratio is only 0.18 against the 1.30 expense ration for large-cap funds.
2. (50%) Vanguard Total Bond Market Index Fund (VBMFX). Its $15 billion bond fund matches the performance of the Lehman Brothers Aggregate Bond Index and its expense ratio is just 0.22.

Both the stock and the bond funds need only a minimum investment of $3,000. So the investor will only need $6,000 to start a Couch Potato Portfolio. For the aggressive investor or the 75-25 Sophisticated Couch Potato Portfolio, he has only to put 75% of his money into the Vanguard 500 Index and 25% to the Vanguard Total Bond Index Fund. If the investor has $10,000 he has to put $7,500 in the stock fund and $2,500 in the bond fund.

Farrell wrote that in Scott’s 2001 report the Couch Potato Portfolio lost only 1.8 percent compared to the 11.32 percent loss suffered by the average domestic equity fund; a 14.18 percent average annual return that outperforms all funds with 10 year records; and recent performance indicated the Couch Potato Portfolio provided an annualized compound return of 10.96 percent and 12.30 percent for the Sophisticated Couch Potato Portfolio compared to average balanced fund return of only 9.45 percent and 11.85 percent return on domestic equity funds.