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Building a portfolio for lazy investors

Nature’s depiction of a Lazy Investor

Not everyone has time or energy to invest in stock markets. Some have the money to invest. But everyone wants to make money in stock markets 😉 It is like saying that one wants to go to heaven but doesn’t want to die. We have already shared our thoughts on how doing nothing can work in stock markets. This post continues on building on magic of laziness.

 
Who should be interested in creating a Lazy & Boring Portfolio?
 
Anyone who has neither time nor energy to invest in stock markets but would like to atleast match the returns offered by overall markets. Though you can afford to not have time and energy, when investing in stock markets, you cannot afford to not have money. 🙂 But beware…you should take care of 3 very important things before you even think of investing in stock markets.
 
How to create a Lazy & Boring Portfolio?
 
We suggest following action plan for creating this portfolio –
  1. Start investing regularly and equally in 2-3 Index Funds. We recommend you read about importance of Index Funds to fully understand their benefits. After that, you can look at a list of Index Funds in India to choose the funds you want to invest in.
  2. India is a growing economy and is expected to maintain high growth rates for atleast a decade or two. So it’s not advisable to stay away from actively managed mutual funds. Alongwith index funds, one should also invest in about 3 Equity Funds – Large Cap, Mid Cap & Multi Cap Funds. This would provide adequate exposure to growth stories at various market capitalization levels.
  3. We assume here that one would also be interested in picking direct stocks. For boring and lazy investors, we suggest they stick with stocks of good companies. But good companies are not good investments at all prices. Hence one should wait to buy direct equities when markets are undervalued. Overall market undervaluation can be judged by checking ratios like P/E, P/B Ratios and Dividend Yields of the market. Our take is that markets trading at anything below P/E of 15-16 can be considered to be a good time to enter individual stocks (assuming that stocks themselves are not overvalued compare to their industry peers or due to some news or irrational exuberance). Having addressed the issue of when to buy, we now face the question of what to buy. A good starting point can be stocks making the index (like Nifty 50 or Sensex). These are large cap stocks that can be considered to be good long term picks. Another good but boring idea can be to look at stocks that pay good dividends and have good dividend payout history. These stocks offer constant stream of increasing cash as dividend payouts.
  4. Till now we have only looked at direct and indirect equities. It would be wise to have debt (funds) to bring in stability to the portfolio. Though Stable Investor has not done any research in domain of debt funds, a good starting point can be list of good long term debt funds available at moneycontrol.com
  5. Last but not the least, it is advisable to put some money in Bank fixed deposits too. You never know when you might get an opportunity to invest substantially in markets (Think: Crashes). During such times, FDs can be liquidated to enter markets and get stocks at bargain prices.
So what would be an adequate mix of all 5 above mentioned investment vehicles?
 
The right mix would depend on an individual investor’s risk appetite, laziness 😉 & investment time horizon. We suggest a below mix for an average investor…
 
 
A risk-averse investor may want to reduce exposure to index and equity funds from 60% to a lower figure of 20-30%. An enterprising investor with a long investment horizon may want to increase his exposure to equities and reduce that of Bond Funds & FDs from 30% to 10%.
 
Lazy investors (& not people) should understand that though they may not have a glamorous transaction record, maintaining their portfolio in line with their own personality will help in diversification, lowering of risk, leveling out of bull/bear cycles and generate market equaling returns, without having to stress yourself and missing out on more important things in life like family, friends and others 🙂
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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

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