Lazy Portfolios: How to Diversify with Just a Few Funds

If you’re looking for a simple investment strategy, so-called “lazy portfolios” may be an appealing option. These consist of just a few widely-diversified mutual funds or exchange-traded funds. Here’s an overview of some common lazy portfolios.

The laziest of lazy portfolios only contain a single mutual fund or ETF: a target date fund. These funds contain a diversified mix of stocks and bonds that automatically changes over time.

Many mutual fund custodians, such as Vanguard and Fidelity, offer target date mutual funds that are widely available in 401(k) plans, IRAs and other tax-advantaged accounts. If you’re investing through a brokerage account that doesn’t offer mutual funds, there are also target date ETFs available, such as the iShares LifePath series.

Typically, target date fund issuers offer a variety of funds that are labeled with target retirement years, often spaced out in five-year increments. For example, the iShares LifePath Target Date 2070 ETF (ITDJ) is intended for young workers who intend to retire around 2070. The LifePath Target Date 2045 ETF (ITDE) is for mid-career workers who want to retire around 2045, and the LifePath Target Date 2030 ETF (ITDB) is for workers on the cusp of retirement.

These funds tend to invest heavily in stocks (with a small bond allocation) when they are decades away from their target date in order to maximize growth, and automatically become more conservative (mostly bonds with a small stock allocation) as that target date approaches. If you’re investing for a non-retirement goal, such as future college expenses for a newborn, you could choose a fund with a target “retirement year” that corresponds to the child’s 18th birthday.

According to Morningstar, the average expense ratio of target date funds reached a new low of 0.29% in 2024


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. That’s not bad, but the fees can be even lower if you build a two- or three-fund portfolio of
index funds
and manage them yourself.

A two-fund portfolio consists of a diversified stock market index fund and a diversified bond market index fund.

These could be global index funds, such as the Vanguard Total World Stock ETF (VT) and the Fidelity Total Bond ETF (FBND), or they could be U.S.-focused index funds such as an
S&P 500 ETF
and a short-term U.S. Treasury ETF.

Initially, a two-fund portfolio should consist mostly of the stock fund — say, 80% stock fund, 20% bond fund — but over time, it should gradually shift toward bonds as you near retirement (or whatever your financial goal is).

Opinions vary about the right “ending allocation” of a two-fund portfolio; 80% bonds and 20% stocks or 60% bonds and 40% stocks are both possible answers. It depends on what level of risk you’re willing to tolerate at the end of your investment journey.