The Rise of ‘Lazy Portfolios’ Can Simplicity Outperform Active Investing?

Lazy portfolios are investment strategies crafted for simplicity, low effort, and cost efficiency. Built with long-term objectives in mind, they aim to deliver consistent returns without requiring frequent monitoring or active management. Here's a closer look at how they work and why they matter

Imagine you’re at a restaurant where 9 out of 10 dishes are guaranteed to disappoint. Would you still order randomly—or pick the one proven meal that never fails? Yet, many of our fellow investors do exactly this with their hard-earned money. They chase 'star' fund managers, track net asset values (NAVs) and returns obsessively, and pay high fees—only to discover, as the latest SPIVA report reveals (ending December 2024), that 93 per cent of active Large-Cap funds underperform their benchmarks over five years. Even over a decade, 74 per cent still fail to beat a simple index.

But what if you could ignore the noise, pay near-zero fees, and still outperform most professionals? Enter the Lazy Portfolio—a boring, low-effort strategy that leverages the worst-kept investing secret: simplicity wins.

The SPIVA India 2024 report exposes a brutal truth
Indian large-cap and ELSS funds showed persistent underperformance by active managers in 2024. While the S&P India LargeMidCap gained 15.9 per cent, 60 per cent of active large-cap funds failed to beat the benchmark, worsening to 93 per cent over five years. Even over a decade, 74 per cent underperformed. ELSS funds fared slightly better in 2024, with 45 per cent lagging the S&P India Broad Market Index's (BMI) 17.6 per cent return, but long-term results were dismal—84 percent underperformed over 10 years, despite a high 73 per cent survival rate.

Mid- and Small-Cap funds faced the toughest challenges. The S&P India SmallCap surged 27 per cent in 2024, yet 54 per cent of active funds missed the mark. Over 10 years, a staggering 88 per cent failed to keep pace—the worst underperformance among all equity categories. These results reinforce the difficulty active managers face in consistently outperforming benchmarks, particularly in the long run.

Warren Buffett foresaw this active management underperformance crisis long before SPIVA data confirmed it. In 2008, he made a famous USD 1 million wager with hedge fund manager Ted Seides, betting that a simple S&P 500 index fund would outperform a handpicked portfolio of hedge funds over ten years. The results were staggering: Buffett's low-cost Vanguard S&P 500 index fund delivered 7.1 per cent annualised returns (125.8 per cent cumulative), while the hedge fund portfolio managed just 2.2 per cent annually (36.3 per cent cumulative).

This wasn't just an American phenomenon. Buffett has repeatedly stated that his will instructs trustees to invest 90 per cent of his wealth for his family in an S&P 500 index fund, noting: 'The goal of the non-professional should not be to pick winners, but to own a cross-section of businesses that in aggregate are bound to do well.'

The parallels to India are striking. Just as Buffett's index fund trounced sophisticated hedge funds, our SPIVA data shows Indian index funds consistently beating most active managers. The reasons are identical: high fees, excessive trading costs, and the mathematical impossibility of most professionals outperforming the market average after expenses. Buffett's wisdom rings especially true in India's volatile markets, where fund managers often take extreme bets to justify their fees, only to underperform over time. As he quipped: 'When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.'

What Are Lazy Portfolios?
Lazy portfolios are investment strategies designed to be simple, low-maintenance, and cost-effective. These portfolios are typically built with long-term goals in mind, aiming to provide steady returns with minimal involvement from the investor. The term 'lazy' refers to the minimal effort required to maintain the portfolio once it is set up. The idea is that with a welldiversified mix of low-cost index funds or exchange-traded funds (ETFs), investors can avoid the time-consuming task of frequent market monitoring and rebalancing, while still achieving strong financial growth over time.

The concept of lazy portfolios draws inspiration from the Bogleheads’ philosophy, a movement inspired by the principles of Vanguard founder John Bogle. Bogle was a strong advocate for low-cost, passive investing strategies that emphasise buying and holding diversified portfolios of index funds. His philosophy encourages investors to steer clear of trying to 'beat the market' through active stock picking or frequent trading. Instead, the focus is on achieving broad market exposure, allowing the natural growth of the market to work in the investor's favour. This philosophy has been embraced by many investors, including those following the 'Bogleheads' approach, which revolves around simplicity, cost-efficiency, and long-term growth.

Another key influence on lazy portfolios comes from Warren Buffett's famous 90/10 rule, which advocates that 90 per cent of an investor's portfolio should be allocated to low-cost index funds, with the remaining 10 per cent allocated to individual stocks. This approach reflects Buffett’s belief that most individual investors are better off sticking with simple, diversified investments rather than trying to pick winning stocks. The idea is that a solid foundation of index funds, paired with a small allocation to individual stocks, can provide both stability and the potential for outperformance, without requiring constant adjustments or expert knowledge.

At the heart of lazy portfolios are three core principles: low cost, diversification, and minimal rebalancing. First, low cost is crucial because it allows the investor to retain more of their returns over time. Index funds and ETFs typically have lower fees than actively managed funds, which means that less of the investor’s money is spent on management fees. Second, diversification ensures that the portfolio is spread across a wide range of asset classes, reducing the risk of significant losses from a single investment. By holding a variety of stocks, bonds, and other assets, investors are less exposed to the volatility of any one asset class. Lastly, minimal rebalancing means that once the portfolio is set up, it requires little ongoing effort. Lazy portfolios often involve setting a target allocation at the outset and only adjusting the portfolio periodically (for example, once a year) rather than constantly tweaking it in response to market movements.

In summary, lazy portfolios offer a practical solution for investors who want to take a hands-off approach to managing their investments. By embracing the Bogleheads philosophy and Warren Buffett’s simple rule, investors can build a diversified, low-cost portfolio that will grow steadily over time, with minimal time and effort required on their part.

The Problem with Overcomplication
The Indian equity market has become increasingly volatile, driven by a combination of geopolitical tensions, fluctuating commodity prices, and uncertain tariff policies. These factors have led to sharp daily movements that challenge even the most seasoned investors.

A prime example of this unpredictability was seen around June 4, 2024. Following exit polls on June 1 that projected a decisive win for the BJP-led NDA, markets surged by 3–5 per cent on Monday, June 3. However, the final election results announced on June 4 painted a different picture, triggering a sharp correction. Benchmark indices fell 3–5 per cent, and several individual stocks declined even further. Many mutual fund investors viewed this dip as a buying opportunity, opting for lump sum investments to capitalise on the correction. Yet, less than a year later, most diversified equity mutual funds have delivered either negative or low single-digit returns. While some sector-specific and gold funds posted double-digit gains, the once-popular small- and Mid-Cap funds saw muted performance.

In 2024 alone, the Nifty 50 witnessed 11 trading sessions with intraday volatility exceeding 3 per cent, testing the resolve of even professional traders. For retail investors attempting to time the market or chase top-performing funds, such volatility often leads to reactive decisions—panic selling, switching strategies prematurely, or chasing yesterday’s winners— ultimately undermining long-term returns.

The rising market volatility has made active fund-picking increasingly stressful and counterproductive for retail investors. Attempting to time entries or chase short-term outperformers amid such unpredictability often results in poor investment decisions. Instead, investors would be better served by adopting a disciplined, long-term approach with well-diversified funds, rather than trying to outsmart the market in turbulent times.

Performance Comparison
To evaluate the performance of a lazy portfolio strategy, we used actual historical data for gold, bonds, and stocks in India. The dataset contained daily prices for each of these asset classes—represented by a gold fund, a dynamic bond fund, and the BSE 500 index. We calculated the daily percentage returns for each asset. We started assigning fixed weights to build a moderately aggressive portfolio: 60 per cent in stocks, 30 per cent in bonds, and 10 per cent in gold. The portfolio had an annual rebalancing mechanism in place—every new year, the portfolio is reset to the original asset weights. On each day, the portfolio's value is updated based on the daily returns of each asset and their current weights.

The objective of this experiment was to test whether a lazy portfolio—one that is passively managed with fixed allocations and minimal intervention—can deliver competitive returns with lower risk compared to investing in a single asset like gold, bonds, or equities. It offers valuable insights into the benefits of diversification and disciplined rebalancing, making a strong case for lazy investing as a practical strategy for long-term wealth creation.

Following table shows important stats of portfolio and different assets

Over the long-term period from 19th September 2007 to 5th May 2025, each asset class—Gold, Bonds, and Stocks—has showcased its unique risk-return characteristics. Among the individual assets, stocks delivered the highest CAGR of 10.27 per cent, outperforming both bonds (8.01 per cent) and gold (4.75 per cent). However, this higher return from stocks came at the cost of significant volatility, evident from its maximum drawdown of -64.26 per cent, the worst among all.

Gold, while often considered a safe-haven asset, had a modest total return of 126.57 per cent and suffered a -63.49 per cent drawdown, indicating substantial downside risk during adverse periods. Bonds, on the other hand, displayed the most stable performance with the lowest drawdown (-7.57 per cent), highest Sharpe ratio (2.73), and a stellar win ratio of over 94 per cent on a yearly basis—making it the most consistent performer.

Despite stocks having the highest total return (459.97 per cent), the rebalanced portfolio (10 per cent, Gold per cent, Bonds 60 per cent Stocks) demonstrates a compelling risk-adjusted profile. It achieved a CAGR of 9.99 per cent, closely matching that of stocks, but with significantly reduced volatility and drawdowns. The maximum drawdown for the portfolio was -47.68 per cent, markedly lower than stocks and gold. More importantly, it boasts a higher Sharpe (0.82) and Sortino (1.29) ratio than both gold and stocks, indicating superior riskadjusted returns. The Calmar ratio of 0.21 for the portfolio, while not beating bonds, still comfortably exceeds that of stocks and gold, highlighting better returns per unit of drawdown.

In essence, while individual assets each have their strengths— stocks in terms of return, bonds in terms of stability, and gold in terms of hedging—the diversified, annually rebalanced portfolio clearly delivers the best of all worlds. It combines the upside of equities with the stability of bonds and the noncorrelation benefits of gold, resulting in smoother performance, higher consistency, and superior downside protection. Over time, this strategy not only maximises returns but also helps investors stay invested through volatility, making it a smarter long-term wealth creation approach.

This is a long-standing belief among many Indian investors, rooted in the idea that some funds can consistently beat the market by actively managing the portfolio. While it may have held some merit in the past, particularly in less efficient markets, our experiment underscores a critical reality: passive strategies like a lazy portfolio can deliver competitive, even superior, risk-adjusted returns with far less effort, cost, and complexity. The portfolio—comprising just a mix of broadbased index exposure to equity, debt, and gold—showed consistent growth with lower volatility, especially when rebalanced annually. Over the long term, it’s extremely difficult for active managers to consistently outperform after fees and taxes, particularly in large-cap segments where index funds like Nifty 50 or BSE 500 already represent most of the available opportunity. Passive investing not only simplifies the process but also lets the market work in your favour, without needing to predict winners.

Many investors wrongly assume that holding multiple funds across categories ensures better diversification. In reality, excessive fund overlap—especially in actively managed equity funds—leads to diworsification, where you simply end up owning the market inefficiently and paying higher expenses. Your lazy portfolio simulation, built using just three core asset classes—gold, bonds, and equities—shows that meaningful diversification is possible with as few as 3–4 funds. What matters more is asset class allocation (equity vs. debt vs. gold) rather than the number of funds. In fact, too many funds can dilute returns, create confusion during rebalancing, and make monitoring performance difficult. A simple, well-structured portfolio reduces noise and helps stay focused on long-term wealth creation.

Conclusion
The findings from our experiment affirm that simplicity often trumps complexity when it comes to investing. A disciplined, low-maintenance lazy portfolio not only holds its own against active strategies but also offers better peace of mind through smoother returns and lower volatility. Myths that glorify active management and fund-hopping can distract investors from what truly matters—asset allocation, time in the market, and consistency. In a world full of noise and market predictions, lazy investing might just be the smartest, most reliable strategy of all.