Reuters Money

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).

When stocks get hammered, bonds, real estate and commodities pick up the slack. This is diversification in action and nearly all of your bases are covered through low-cost mutual funds or exchange-traded funds. While this is not a risk-free strategy — it was down 22 percent in 2008 compared to a roughly 40-percent decline in U.S. stocks — it tempers volatility while offering returns from across the world.

As a risk-adjusted strategy, I prefer the 7-12 to my own “Nano” portfolio of half as many funds, which MyPlanIQ also graciously tracks. My performance, based on the same principle, but with fewer asset classes, wasn’t too shabby, either, posting about 9 percent over the half-decade.

Here’s what the 7-12 looks like with both index mutual funds and their exchange-traded fund alternatives:

While I would probably combine this portfolio’s commodities holdings into one fund — Powershares DB Commodity Tracking Index (DBC) — and increase the allocation to TIPs, this line-up is fairly sound.

Just make sure that if you’re in retirement, that you consult a fee-only financial planner to see how you could rework these passive allocations to lower risk even more and boost income.

Also note I already endorse much of what Prof. Israelsen does here because I own several of these funds already as core holdings in my family portfolio.

The big picture for anyone building a long-term portfolio? Put a diversified plan in place, spend as little as possible on fund costs and leave it alone. This is one case in which being accused of being a lazy lump isn’t such a bad thing.