P Andrew Tobias Three Fund Lazy Portfolio Annual Balance desc

Apr 13, 2025 | 401Ks

Comprehensive Overview of the P Andrew Tobias Three Fund Lazy Portfolio

1. Background and Philosophy

Andrew Tobias is a renowned financial author and investor, best known for his book “The Only Investment Guide You’ll Ever Need.” His philosophy centers on simplicity, low costs, and long-term investing. The Three Fund Lazy Portfolio reflects his belief that most investors can achieve success with minimal effort by using low-cost ETFs or index funds. Tobias advocates for dollar-cost averaging (regular, consistent investments) and periodic rebalancing to maintain the portfolio’s target allocation. This approach minimizes fees, reduces emotional decision-making, and leverages broad market diversification.

2. Asset Allocation Analysis

The portfolio is evenly split into three funds:

  • 33.3% Vanguard Total Stock Market Index Fund (VTSMX): Provides exposure to the entire U.S. equity market, covering large-, mid-, and small-cap stocks. This ensures diversification across sectors and company sizes.
  • 33.3% Vanguard Total International Stock Index Fund (VGTSX): Offers broad exposure to developed and emerging international markets, reducing reliance on U.S. performance and adding geographic diversification.
  • 33.3% Vanguard Inflation-Protected Securities Fund (VIPSX): Invests in Treasury Inflation-Protected Securities (TIPS), which hedge against inflation and add fixed-income stability to the portfolio.

Risk Level and Pros/Cons

Risk Level: Moderate. The portfolio is heavily weighted toward equities (66.6% stocks), which introduces market volatility, but the 33.3% bond allocation mitigates risk.

Pros:

  • Simplicity: Easy to manage with just three funds.
  • Low Costs: Vanguard funds have low expense ratios.
  • Diversification: Covers U.S. and international stocks, plus inflation-protected bonds.

Cons:

  • No Commodities or Alternatives: Lacks exposure to assets like gold or real estate.
  • Higher Equity Risk: May be too aggressive for conservative investors nearing retirement.

3. Practical Application for Retirement Accounts

For 401(k) Accounts:

Investors should:

  1. Identify Equivalent Funds: Look for funds in their 401(k) that match the lazy portfolio’s holdings. For example:
    • VTSMX: Use a U.S. total stock market index fund or an S&P 500 fund if the former isn’t available.
    • VGTSX: Substitute with an international stock index fund or a mix of developed and emerging market funds.
    • VIPSX: Replace with a TIPS fund or a general bond fund if TIPS are unavailable.
  2. Adjust for Missing Holdings: If a specific fund (e.g., VIPSX) is unavailable, allocate that portion to broader asset classes like U.S. stocks or bonds.
  3. Commodity Workaround: Since 401(k) plans rarely offer commodity funds, investors can allocate that portion to stocks or ignore it entirely.

For IRA Accounts:

Investors can directly replicate the portfolio by purchasing the three ETFs or their mutual fund equivalents (e.g., VTI for VTSMX, VXUS for VGTSX, and VTIP for VIPSX). IRAs offer greater flexibility, allowing for precise adherence to the lazy portfolio’s structure.