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from Reuters Money:

Lazy portfolios win again in 2010

Those of you who diligently invest from reclining chairs with passive portfolios, rejoice! You had another good year without doing much of anything.

Not only did you get more out of life by not watching business TV channels, stock prices on your smartphone or fretting over the latest blip on Wall Street, you built up your retirement portfolio without much effort.

Those of you who thought you were smart and safe by piling all of your money into bond funds, turn off your TV. There's a better way.

One of the best approaches last year -- as in most years -- was to cover the major asset classes in one portfolio. This doesn't involve guessing whether stocks, bonds or real estate will be hot. You place almost equal amounts of money in every major category.

Craig Israelsen, who teaches finance at Brigham Young University, has a real lazy portfolio he calls "7-12." The concept is elegant: seven asset classes covered by 12 funds. He blankets nearly all of the U.S. and overseas stock and bond markets, real estate, commodities and a little bit of cash.

Over the past five years, the 7-12 has been among the best performing passive portfolios tracked by the online service MyPlanIQ.com, sporting a 13 percent return.

The 7-12 makes it simple by equal weighting most U.S. stocks and bonds (16.7 percent each) with smaller allocations to real estate, non-U.S. bonds and cash (about 8 percent each).

from Reuters Money:

The year’s best and worst ETFs

The best investments often don't have the highest returns. I know this is heresy to most, yet mass behavior can be a siren song.

About this time every year, we gaze intently at our portfolios, hoping against hope that we did something right. Sometimes we get lucky.

Two years ago, we didn't even want to open the envelope containing the bad tidings of the market meltdown. I kept my mutual fund statements sealed that year.

This year, there's some palpably good news to spread around, although it doesn't necessarily involve the best-performing investments.

Unfortunately, those who noted and invested in the best performers in ETFs recently are doing exactly the wrong thing. They are loading up in overheated funds when the general consensus is that this is the right thing to do. As previous market manias have proven, "the lemming effect" is something that millions of investors routinely forget or ignore.

Case in point are the sizzling returns of the most-popular ETFs this year. The iShares Gold Trust (IAU), with a three-year return of almost 20 percent (year-to-date as of Dec. 13), was one of the darlings of the precious metals crowd. The SPDR Gold Shares (GLD), iShares Silver Trust (SLV) and Powershares DB Precious Metals ETF (DBP) were not far behind.

As economic klaxons sound alerts about the troubled Euro and Dollar, investors have herded into precious metals with abandon. The SPDR Gold Shares fund alone has grown to more than $54 billion in assets.

Vanguard plans UK target retirement date funds

US passive giant Vanguard is planning to bring its target retirement date products to the UK market to target the growing defined contribution (DC) pensions business.

Taking to Reuters at the Fund Forum, Tom Rampulla, managing director of Vanguard UK, said that the firm was currently trying to structure these long term savings products for the UK market, and looking to add key funds to support the offerings.

“We’re trying to construct a glide path and looking to add an inflation-hedge bond fund and a long-dated bond fund,” he said. A glide path describes the way an investor’s asset allocation changes over time as they near their target retirement date. For example, a younger investor might have more equity exposure than bonds, but move more of their savings into bonds as their retirement date nears.

Rampulla said that the DC market wasn’t huge yet in the UK but 80 percent of these DC assets are in the “default” option – generally a balanced fund which is concentrated in equities.

Although Vanguard didn’t initially set out to target the instistutional market in the UK, some 50 percent of its £800 million under management is in this segment, and Vanguard recently appointed David Plumstead to lead the institutional sales business.

It has already received commitments from pension funds, insurers and a Belgian multi-national with a UK retirement plan, with flows mostly into the equity index products.

Beyond the bond fund launches and the roll out of the target retirement date products, Rampulla said he was also looking to add Exchange Traded Funds (ETFs) to the UK range to help support its targeting of the fee-based adviser market.

from Global Investing:

Slow and steady wins the race: Malkiel

Investment guru Burton Malkiel, author of A Random Walk Down Wall Street, has revealed at a briefing that Chinese equities form the largest part of his personal satellite portfolio, although the core remains in low-cost index funds.

Malkiel, in town to beat the drum for Vanguard's index funds, argued that China will be the biggest economy in the world in 20 years' time, but most investors are underweight the emerging giant. "I'm a real expert on China - I've been there five times," he joked, but made the serious point that most investors have a home bias.

"In general, people are inadequately diversified," he said. "When people ask me how much international diversification they should have, I say: A lot more!" He conceded that asset class diversification had not been much help last year when markets collapsed in a great unwinding, but added that gold and US Treasuries had provided some relief.

Malkiel believes investors would do much better if they didn't try to time the market - because they invariably get it wrong.

Over 15 years, between 1994 and 2008, those who stayed the course enjoyed an average annual return of 6.5 percent, whilst those who missed the best 30 days were down 3.7 percent per annum. If you stayed out longer and missed the best 90 days, you'd be down 14.6 percent per annum on average.

Similarly, those investors who save regularly, putting money into markets every month through good times and bad, benefit from dollar cost averaging, essentially buying more units for the same monthly sum when prices have fallen, and then enjoying any subsequent appreciation.

It's a victory for the tortoise, not the hare.