I’m Lazy and Beat The Stock Market

In this post I will show you the exact portfolio and allocation strategy I’ve used to beat the S&P 500 and Dow so far this year. I did it without making a single trade or buying a single stock. I didn’t day trade or make any of my previous investing mistakes. In fact, I didn’t do much of anything except let my well-researched mix of index funds that I built in 2014 ride – with a few small tweaks. I like to call this the Millennial Money portfolio – my personal long term passive investing strategy influenced by the coffeehouse lazy portfolio, with my own modifications (mostly more exposure to emerging markets).

I am not an investing professional (but most professionals don’t beat the market over time!) and even though I feel confident in my portfolio allocation and fund selection strategy I welcome feedback – so please share your thoughts or questions in the comments. I am definitely still learning, but this strategy has worked well for me.

The Millennial Money Portfolio has beat the market by 1.23%

Here is a look at my returns year to date for 2016. Note how my year to date return is 5.51% compared to the S&P 500 4.28% growth and the Dow 4.79% Dow returns. While a return of 1%+ might not seem like a lot, this will compound over time and give me an advantage over the market if I can sustain these gains. One piece of advice – because it’s so easy to use Empower I used to check my portfolio daily or multiple time a day. It drove me crazy so I only check it once a month now.

All of the images below are from the free account that I have at Empower, formerly Personal Capital. They allow you to track all of your investment performance and provide free asset allocation recommendations.

How I Beat The Market
The Millennial Money portfolio returns have beat both the S&P 500 and Dow so far in 2016

The Millennial Money Portfolio Asset Classes and Allocations

Your investments by asset class and target allocation in many cases matters more than the funds that you select. This represents your exposure to different markets, so it’s important to find an ideal target asset allocation for your age and risk tolerance and try to hit it with your mix of funds.

The following is a breakdown of my exact portfolio by percentage asset class. You can see that I invest in a mixture of domestic and international stocks bonds, as well as alternative investments. I try to keep this percentage allocation very close to my target levels, which does require a bit of re-balancing every now and then.

I usually re-balance my portfolio twice a year or if something super weird happens and it gets more than 5% out of whack. I am planning to re-balance my portfolio on January 1st and you can see that I am getting close to being 5% off due to some strong returns in my international stock holdings over the past few months.

Portfolio Classes by Percentage
Portfolio Classes by Percentage

The Millennial Money Long Term Investment Portfolio

The following is a list of the exact funds that make up my portfolio. I chose this mix after a lot of research on Morningstar, the Bogleheads forum, and reading the best books on investing. While I have previously tested platforms like Betterment and reviewed services like Vanguard Personal Advisor Services, I ultimately wanted to the control of building and managing my own investment portfolio. It doesn’t take a lot of work, forces me to learn more about what I am investing in, and gives me more control.

This is by no means a recommendation on what you should invest in – just what has worked well for me over the past few years. I hope it gives you a few new ideas. The following funds I currently hold my longer term investments vehicles, but not all of these funds are in the same investment account. I invest some of these in my tax deferred (Roth 401k and Roth IRA) and others I invest in a taxable account once I have maxed out my pre-tax contributions limits. I use my tax advantaged accounts for funds where more trading occurs to I don’t get taxed on the gains, and only invest in full index funds (VTIAX and VTSAX) in my taxable account since there is little trading volume so I can minimize my tax exposure.

Check out the funds below and build your best mix to hit your ideal asset class allocation.

Cash

VMMXX: Vanguard Prime Money Market Fund

Stocks & Bonds

VWENX: Vanguard Wellington Fund Admiral Shares

International Stocks

VTIAX: Vanguard Total International Stock Index Fund Admiral Shares

VWO: Vanguard FTSE Emerging Markets Index Fund ETF Shares

VEA: Vanguard MSCI EAFE ETF

US Stocks

DVY: iShares Select Dividend ETF

IJR: iShares Core S&P Small-Cap ETF

VO: Vanguard Mid-Cap Index Fund ETF Shares

VTSAX: Vanguard Total Stock Market Index Fund Admiral Shares

VTV: Vanguard Value Index Fund ETF Shares

VUG: Vanguard Growth Index Fund ETF Shares

Alternatives

VNQ: Vanguard REIT ETF

What do you invest in?

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  • Comment Author image blank
    Hi Grant, thanks for doing such fantastic work sharing your portfolio allocation strategies! Extremely valuable stuff. As your focus is primarily from the US citizen's viewpoint, what reading/audio material do you suggest for European citizens (Asia residents) portfolio building?
    Reply
  • Comment Author image blank
    This article's title is highly misleading, seems like clickbait to me. Beating the S&P 500 at a specific point in time is not a great achievement and should not be used as a reference in any investing discussion. With this same allocation, as of the end of March 2020 and looking back 5 years this portfolio had gained 2.53% per year compared to the S&P 500 which has gained 6.73% per year with the same Standard Deviation (so you essentially took the same risk as the S&P 500 but your return was 4.2% below the S&P 500). Be more transparent when sharing your investing ideas, your situation is completely different to others and people should read your articles with a grain of salt.
    Reply
  • Comment Author image blank
    Great post, Grant! Curious why you have such a low allocation in Bonds?
    Reply
    • Grant Sabatier
      Because I don't plan to withdraw any money for the next 10 years so want to keep it growing!
      Reply
  • Comment Author image blank
    One fund, Vanguard Total Market Index Fund (VTI) beats every portfolio presented above over a 15 year horizon. Cherry picking any one year is not a valid measurement. 15 years or more are required to determine the real performance of a portfolio.
    Reply
    • Grant Sabatier
      I agree Tom! I was excited that diversifying into other index funds beyond VTI helped me to actually beat the market for the past 5 years. Good point.
      Reply
  • Comment Author image blank
    Hello Grant! Love the info you've provided here. When investing in Vanguard, do you do the 'Reinvest' option for dividends or do you send it to a money market fund? Thanks!
    Reply
    • Grant Sabatier
      Thanks Dylan. Reinvest all the way!
      Reply
  • Comment Author image blank
    Awesome work with your portfolio and this blog in general. I just went through my own journey of deciding between DIY vs robo-advisors vs financial advisors and found your website very helpful. A couple of questions / comments 1.) VWENX: Vanguard Wellington Fund Admiral Shares - you have this marked as a Bond fund but when I researched this it showed 65% stocks 2.) Overlap - in my research of the various funds (most of the same ones you listed) I noticed a lot of overlap. Like the VTIAX: Vanguard Total International Stock Index Fund Admiral Shares has 20% emerging markets. Just something to pay attention to so you don't end up over exposed without realizing it. I ended up going with a portfolio that took advantage of Vanguard Admiral Shares ... VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares - 40% VSMAX - Vanguard Small-Cap Index Fund Admiral Shares - 10% VTIAX - Vanguard Total International Stock Index Fund Admiral Shares - 35% VGSLX - Vanguard REIT Index Fund Admiral Shares - 10% VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares - 5% Now that I have decided on an Assest Allocation, my next project is to research Asset Location and how to best split these between a taxable account and tax deferred / free account.
    Reply
    • Comment Author image blank
      Thanks Linus. I appreciate the kinds words and you catching the typo on the Wellington. Yes, you are right there is some overlap - which is because I have some of these investments in different accounts, like my Roth IRA, SEP IRA, 401k, and brokerage accounts. That's a great model portfolio you've built! Vanguard should be proud! Haha. I just recently increased by VTIAX exposure given the domestic valuations.
      Reply
  • Comment Author image blank
    Love it. Who says individuals can't create their own investment portfolio that can perform and throw off cash at the same time? To answer your question, I invest in individual stocks in a taxable and retirement accounts. I hold only dividend paying stocks in my portfolio and reinvest all dividends automatically. The goal.... create an ever growing passive income stream.
    Reply
    • Comment Author image blank
      Nice. Thanks DivHut.
      Reply
  • Comment Author image blank
    This is great Grant. When you have a large portfolio, I think it makes sense to work the margins like this to come up with an asset allocation that push the envelopes a little bit. I'm always telling the lawyers that are just starting out that they can basically ignore asset allocation at first (just buy the total stock market and maybe pick up a small international component) since saving money is the only thing that matters when you're building your portfolio. Nice to see you getting a very handsome reward. That 1% is huuuuge.
    Reply
    • Comment Author image blank
      That's great advice for new lawyers. Yeah, gotta squeeze out what we can. I've beaten the market the past 5 years. I've been thinking about starting a hedgefund (look at their terrible returns). J/K. Thanks for your comment.
      Reply
  • Comment Author image blank
    Thanks for sharing! Very interesting. I still have most of my money in actively managed funds, and yes the performance is pretty underwhelming. I keep meaning to move into index funds but I want to read up a bit on a few things first because I, like you, don't want 100% in, say, an S&P index fund and nothing else. I note however, that you are using a lot of ETF's, any reason for this? One fund manager, Terry Smith, who has made me returns of 20%/year for the past 5 years, is a vocal critic of ETF's (see this link: https://www.ft.com/content/f4f4c40e-41d3-11e1-a586-00144feab49a) - I don't really understand the ins and outs, but the guy has made me good money so I listen to what he says! Just for your consideration! Cheers, Paulie
    Reply
  • Comment Author image blank
    Strong Work. My "You Index" looks similar - in September, I was up nearly 11% when the S&P 500 was up 7% YTD. That 4% gap has closed significantly since the recent balloting, as international stocks and REIT have taken a beating. What to do about it? Nothing! Except rebalance with new funds. Cheers! -PoF
    Reply
    • Comment Author image blank
      Oh yeah! Congrats PoF. It's nice that with a little bit of diversification and an hands off approach it's really not that difficult to consistently beat the market. No one ever told me this, but over the past 5 years I have beat it every year! Maybe we should start a hedge fund - a lot them haven't done so well this year and they take 1-2% assets under management. Hmmmmm....
      Reply
  • Comment Author image blank
    I buck the trend and have moved beyond indexes. I have about 10% in REIT index, but the rest of my portfolio is in high quality active management. A lot of Vanguard Equity Income (similar to the stock portion of Wellington Fund) and Baird Core Plus for bond exposure. I also utilize Mairs and Power out of Minnesota for their Growth Fund and Small Cap fund. Seeing their portfolio moves is like watching paint dry. I was a Mairs and Power skeptic for a number of years because of their "Midwest focus", but finally I could not deny their results have been consistently excellent. Plus I don't mind avoiding some of the very highly weighted stuff in the broad index Apple, Amazon and Facebook.... We'll see! It's been difficult for me to determine how my mix of stuff has done vs. a given index because the PersonalCapital You Index feature takes your current portfolio weightings and backdates that rather than accounting for your trades, natural changes in value, added contributions etc
    Reply
    • Comment Author image blank
      This is really interesting TJ. Yeah I invest about 10% of my portfolio more actively and have for awhile. I'm pretty conservative though, but got in really early on APPL and FACE - just let them roll now. I'll look into Mairs and Power (haven't heard of them). What investing service do you use? Can't you see the performance to date and just compare it to the index funds on Vanguards website (for example)? Yeah the YouIndex has it's drawbacks, but it's nice to see at least my core investments usually beat the market! Thanks for stopping by.
      Reply
  • Comment Author image blank
    Awesome job beating the market and not constantly trading!!! I built a portfolio with some well researched stocks and they had been doing really well. With President elect Trump coming in there is a bit of volatility in the market but hopefully it won't affect my portfolio too much. Prior to the election I had been doubling the S&P 500 but now I'm about three points above the market.
    Reply
    • Comment Author image blank
      Thanks Mustard Seed. 3 points above the market is great! Over the past 5 years I have remained between 1-2.5% above the market consistently with just my fund investments. If I was to count my entire portfolio with individual stocks it would be a bit higher, but some failed attempts at day trading 3 years ago crushed me (thank you carry over losses!). But it does feel good to be an "above average" investor since 85% of people don't consistently out perform the market.
      Reply
  • Comment Author image blank
    Nice work! My graph looks pretty similar to yours. I don't have quite as much international exposure as you do so my overall returns have been a bit higher so far this year. Overall my investment strategy is the same as yours - buy and hold for the long-term. I do have a small portfolio where I buy individual stocks that I think are at a good value, but it's a very small makeup of my overall portfolio.
    Reply
    • Comment Author image blank
      Thanks! Yeah I was pretty hesitant about my international stock allocation just given overall global market volatility in Europe and Asia. But after watching a few Vanguard webinars and doing more research I do believe that more international diversification will be valuable long term. Emerging markets are tough, but have strong upside potential. I also have a small individual stock account (but it's less than 10% of my assets) That I have some fun with. I got lucky getting in early on FACE and APPL and have diversified a bit more now. Thanks for stopping by!
      Reply