When Being Cheap and Lazy is Better

credit: freedigitalphotos.net

credit: freedigitalphotos.net

A few months ago, I got my co-worker to sign up for the 403b plan (401k for public sector workers). He has been getting interested in investing and spoke to his friend who referred him to a financial adviser. I gently implied to my co-worker that the adviser may not necessarily have his best interests in mind as he works on commission and may steer him towards investments that earn the adviser more money. My co-worker responded by saying that he does not begrudge another person trying to earn money. You pay an attorney for legal advice, a doctor for medical advice, so why not a financial professional for financial advice? When I suggested index funds, he said that they might be good for a beginner, but if you have a professional managing your portfolio, why not beat the market instead?

All good questions. Being cheap and being lazy are two negative terms. This is for a good reason. It is because these traits are bad. It is counter-intuitive to think that you can often get the best return by spending less. But remember higher price does not mean better quality. It is counter-intuitive to think the less you work at something, the better the results. Investing is a unique creature. A lot of common sense thoughts on it do not apply.


Index funds outperform actively managed funds. So why pay more for poorer performance. Also, one of the reasons index funds outperform actively managed funds is because they keep their costs low. Costs matter. They matter a lot. Check out this tool on Vanguard’s website which shows you how much higher costs eats into your returns.

There are no affiliate links in this article. I am not paid by Vanguard. I am just a big fan of the company

As for a financial adviser, those can be costly. If you have a large amount of assets, then you might need to speak to a professional. But even in that situation, I’d advise you to use a fee only adviser who gets paid for answering your questions and helping you create a investment plan. I would not go to a commission-based adviser who may steer you to expensive funds that pay him a referral feel. For most of us, you can do some research online or use this tool at the Vanguard website to decide what type of fund is good for you.

Or you can use a lazy portfolio. (more on that later)


We’ve been taught that working hard will bring you success, so why is investing any different. If we want to be successful, shouldn’t we research companies’ financial statements and attend stockholder meetings. Well number one, I highly doubt most of us have the time to do this. And number two, since many professional fund managers are not able to beat the market when it is their job to do so, it is highly unlikely that you can.

“If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”
– Legendary Investor Peter Lynch

It is counter-intuitive, but you should set up your asset allocation and then ignore all the noise about what the stock market is doing. It can drop 170 points because of tension in the Middle East or go up 300 points because Ben Bernanke sneezed, it doesn’t matter if you are satisfied with your investment plan.

According to the Bogleheads wiki page, lazy portfolios are designed to perform well in most market conditions. They contain a small number of low-cost funds that are easy to rebalance and the “lazy” investor can maintain the same asset allocation for an extended period of time.

Here is an example of a lazy portfolio:

33% Vanguard Bond Market Index Fund or Inflation-Protected Securities Fund.

34% Vanguard Total Stock Market Index Fund

33% Vanguard Total International Stock Index Fund.

You can invest in all-in-one funds such as the Vanguard Life Strategy Funds which maintain a preset growth- or income-oriented asset mix (Income, Conservative, Moderate Growth and Aggressive Growth) or a Target Retirement Fund which becomes more conservative as you get closer to your retirement date. (You can also use a different institution if you prefer, just make sure the expense ratio is low).

Investing doesn’t have to be complicated. It can be very simple, so stop making excuses as to why you need to wait. Start investing now. For those who can’t hear enough about the stock market, turn off CNBC and find something better to do with your time. I just saved you tons of money and time. I feel like the Gekko from Geico.

Recommended Reading:
Index Fund Returns Get Better With Age by Rick Ferri
How to Beat 80% of Investors with 1% of the Effort by Matt at Mom and Dad Money.

(Actually there is one affiliate link in this article and it is this book that I read and re-read)

37 thoughts on “When Being Cheap and Lazy is Better

    1. livingrichcheaply@gmail.com Post author

      Thanks Simon! I agree…it is simple and affordable so everyone has access to it. You don’t have to be a financial pro or go to one.

  1. Matt Becker

    Great stuff here Andrew. Of course you already know that I think you’re spot on. Indexing can be a tough sell because of its simplicity. People want to believe that there’s a more complex strategy out there that’s better. I definitely understand that sentiment, but it just isn’t true. You’ve definitely laid out the arguments for an index-based strategy well. And, of course, thanks for the shout out!
    Matt Becker recently posted…You Have to Allow Failure in Order to Promote GrowthMy Profile

    1. livingrichcheaply@gmail.com Post author

      Thanks Matt. I’m glad you are on the side of indexing because you make very well researched arguments that are easy to understand. Hopefully more people will join in. I definitely agree that people always think that more complicated trading methods are better when in actuality simpler is better.

    1. livingrichcheaply@gmail.com Post author

      Exactly, there is no need to use a complex and expensive strategy when a low cost and simple one works better.

    1. livingrichcheaply@gmail.com Post author

      Thanks Rita! That means a lot. I hope more people will find investing less intimidating and start investing.

  2. DC @ Young Adult Money

    You make some great points here. I honestly try not to look at my 401k much at all. I’d rather just consistently make deposits each paycheck and check the fund allocation once every 6 months. Being a lazy investor can really pay off when it comes to the stock market.
    DC @ Young Adult Money recently posted…5 Ways to Stay Busy at WorkMy Profile

    1. livingrichcheaply@gmail.com Post author

      I used to look at it all the time, but it was just a waste of time. If you are satisfied with your fund allocation, it is better to be a “lazy investor.” Sometimes if I hear too much about the stock market, I tend to want to change things up. Not usually a good idea.

  3. E.M.

    It was really nice of you to try and help your coworker out! You have some great explanations here. I am sold on the idea of simple and easy investing. I don’t want to make it more difficult on myself; I read posts on individual stock picking and I don’t think I’d have enough time for that. Beating the market isn’t a goal of mine.
    E.M. recently posted…What Our Day Trip Cost UsMy Profile

    1. livingrichcheaply@gmail.com Post author

      Glad you are down with the idea of simple and easy investing. Definitely don’t need to beat the market to be successful. Ric Edelman, a financial planning said this, “You’re not in a horse race. You’re playing horseshoes . . . merely being close is good enough to win. . . . If successful investors know they can’t pick the right horse, what do they do? Simple: They pick every horse.”

    1. livingrichcheaply@gmail.com Post author

      Hey Charles. I also buy individual stocks, although I do that very very rarely nowadays. I found the same thing…my index funds were more profitable than my individual stocks and active mutual fund. That’s why I made the switch…though the allure of individual stocks is pretty strong and once in a while I’ll buy something. And yes only with money I can afford to lose.

    1. livingrichcheaply@gmail.com Post author

      Good! Low cost is the best way to go…low cost doesn’t mean you’ll be worse off than the high cost plans. I really think that it can be a very simple process. I would love to hear about it when you start the process.

    1. livingrichcheaply@gmail.com Post author

      “Bogleheadbutting” –very creative! Stay the course and ignore the noise…great strategy. It has cost me as well but now I’ve seen the light.

    1. livingrichcheaply@gmail.com Post author

      Absolutely agree…there’s no reason to pay high fees to a financial adviser when you don’t need to. Index funds will work just fine.

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    1. livingrichcheaply@gmail.com Post author

      Thanks for your comment Stefanie! I’m glad there are so many who are also fans of index investing.

  5. Jacob @ Cash Cow Couple

    Looks like great minds have been thinking alike this past week! 🙂 Great article and great analogies.

    One side note as food for thought. Dimensional funds are only offered through select financial planners, and have outperformed Vanguard by a significant margin over the last 10-20 years. They are selectively passive, and the company is fantastic. That’s one reason that some people choose to select a planner.

    FYI – I’m currently all-in at Vanguard.
    Jacob @ Cash Cow Couple recently posted…Understanding How the Stock Market WorksMy Profile

    1. livingrichcheaply@gmail.com Post author

      Haha…yes I guess so! Thanks for the compliment. I am not too familiar with Dimensional funds, but I think I’ll stick with Vanguard index funds. Do you have a post about Dimensional Funds?

    1. livingrichcheaply@gmail.com Post author

      In general they are not good traits, but in this instance I think it is. Cheap might not be a good word but low-cost index funds ARE the best investments in my humble opinion.

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