Is there some sort of "ideal" portfolio that one can set up, never need to change, and still assure yourself the likelihood of doing quite well? If so, obviously, such a portfolio would have to be made up of well-chosen funds which, owned on a long-term basis, would consistently lead to good relative returns, considerably better than those achieved by the average investor.

A subscriber asked such a question referring to what have been called "lazy portfolios". Although such a strategy is not my preferred way of investing, I realize that many investors would prefer not to have to change their portfolios once they are established.

Seven years ago, I previously published what I call my "long-term recommended funds" for people who just want to basically buy and hold. My portfolio consisted of what I then considered to be a good diversified mix of stock and bond funds, along with a single money market fund.

In recommending this portfolio, I never broke things down in terms of what percent of your portfolio should be in each fund. Since the total portfolio consists of a large number of funds, interested investors might consider owning each, dividing your stock allocation equally into each of the stock funds. And, you could likewise divide your bond allocation equally to each bond fund. Or, if you don't want to own so many funds, you might just pick a subset from the list and fund each stock fund equally; ditto for the bond funds.

Here then are the funds I recommended back in 2001 to be included in that portfolio, along with how well they have done in the last 5 years compared to their benchmarks. (Click here to see the archived newsletter where these recommendations were made.) Note that the table includes replacements for funds that are now closed or you may want to substitute instead for greater diversification and/or appropriateness.

Stocks

I present data in the "see track record" section of my site that even five years after a Model Stock Portfolio has been published, past returns have always been significantly better merely by buying and hold our category recommendations than by holding the S&P 500 Index. (The average outperformance is over 5% per year, or 26% cumulatively over 5 years.)

Based on our so far perfect track record of always outperforming over three and five years, then, we feel confident that any of our relatively recent Model Stock Portfolios can be held for at least as long with a good chance of providing highly competitive and market beating returns. You should note that I am doubtful that these results will hold beyond five years. So, we therefore recommend re-adjusting any portfolio over 5 years old to our newest recommendations.

To illustrate the results of using a buy and 5 year hold, here are the results from following my recommendations from 5 years ago, that is, those we made in Apr. 2003.

Stocks

The annualized total return when holding our 6 recommended categories over the subsequent 5 year period, allocated with the percentages we suggested, was 16.8% (if you selected our specific fund choices, 17.4%). The benchmark returns, as stated above, were 11.3% for the S&P 500 Idx and 12.3% for the average diversifed stock fund.

Bonds

Fund	Current Morningstar Style	Allocation	5 Yr Annualized Total Return	Category 5 Yr Annualized Total Return
Vanguard High Yield	High Yield	30%	6.2%	7.4
American Century International Bond	World	25	9.2	8.0
PIMCO Total Return Instit.	Intermediate	25	5.6	3.6
Vanguard Inflation Protected Securities	Inflation	20	6.7	6.7

The annualized total return when holding our 4 recommended categories over the subsequent 5 year period was 6.3%, and if you selected our specific funds, 6.9%. The benchmark returns, as stated above, were 4.5% for the Vanguard Total Bond Mkt. Idx and 4.3% for the average taxable bond fund. Note that the category returns shown for Inflation funds are a repeat of Vanguard's Inflation fund return since a category average is not available.

Why are these simpler ways of managing your investment portfolio not my preferred way of managing my investment portfolio? In spite of the convenience, the fact remains that whenever stocks or bonds do extremely poorly over a multi-year period (such as for stocks between 2000 and 2002), your returns will still be poor, although perhaps a little less negative than market averages. At least with quarterly (or perhaps yearly) adjustments, you have a chance of minimizing some of these loses by reducing your allocations to what appear to be unfavorable categories in the years ahead. Likewise, in a bull market, you can potentially do even better than the "lazy portfolios" by overweighting the categories most likely to outperform.

What do all of the following sites have in common with the funds-newsletter site?

• morningstar.com
• moneycentral.msn.com
• online.wsj.com (online version of the Wall Street Journal)
• www.lipperweb.com (Lipper is a major provider of data to financial publications including the Wall Street Journal)
• www.kiplinger.com (popular financial magazine publisher)
• www.schwab.com (one of the best known brokerage firms)
• www.aarp.org

Each of these sites currently shows up on the first page of search results when someone searches google.com for mutual funds research.

So you can see we're right up there among the top sites. We have worked hard to try to make our research just as useful to the average investor as any of these other sites. Obviously, we can't present as much sheer information as you can find at these other sites. But we do try to simplify mutual investing so that you can cut through the clutter and find the best strategy for good returns, all while not taking excessive risks!

Tom Madell, PhD

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