The Lazy Person’s Guide to Successful Investing

It really is a shame that Taylor Larimore chooses to use the word “Boglehead” in the title of his compelling new book: “The Bogleheads’ Guide to the Three-Fund Portfolio” (Wiley, $24.95.)

There is nothing really wrong with the word. It refers to people who follow the investment principles of John C. Bogle, the founder of Vanguard, the huge mutual fund company known for offering index funds.

Bogle passionately believes in paying the absolute minimum when buying and selling stocks, bonds and exchange-traded funds, investing for the long haul — to minimize both trading costs and capital gains — and diversifying your holdings.

Larimore, who has been described by Bogle as “king of the Bogleheads,” accepts these ideas as gospel. And then he goes further, arguing convincingly in this short — 112-page — engaging book that you can create a solid performing diversified portfolio with just three index funds.

One fund invests in just about all U.S. stocks. Another holds almost every international equity. A third fund is made up of bonds from thousands of U.S. companies and government agencies. All three are what is typically known as total market index funds — one for domestic stocks, one for international stocks and one for bonds.

So what’s my problem with the word Boglehead? The word, coupled with Bogle’s introduction to the book and the fact that three funds Larimore uses as his primary example come from Vanguard, can lead people to think they can only create a three-fund portfolio using Vanguard funds.

That is simply not true as even Larimore — 94 and a self-taught investor — points out.

For many years, “Vanguard was the only mutual fund company where total market index funds were available,” he writes. “Investors are now able to construct the three-fund portfolio with whichever company they prefer.”

And you could, for example, execute his three-fund plan using Fidelity’s Total Market Index Fund, Global ex U.S. Fund and U.S. Bond Index Fund. And as Larimore writes, you should consider the offerings of “any other company offering total market index funds with low expense ratios.”

Still, Larimore is a “Boglehead” and a co-author of two other “Boglehead” books (“The Bogleheads’ Guide to Investing,” Wiley, $26.95, and “The Bogleheads’ Guide to Retirement Planning,” Wiley, $16.95), so we are stuck with the word.

The book is really about achieving great results through a very simple investing strategy. Larimore did not invent that idea. Scott Burns, a longtime personal finance writer, advocated it decades before, and there are certainly other examples.

They would include two books by financial advisers: “How a Second Grader Beats Wall Street” (Wiley, $24.95) by Allan S. Roth, and “The Coffeehouse Investor” (Portfolio, $12.80)by Bill Schultheis. Each suggests an approach similar to the one Larimore puts forth.

But that it is not unique does not minimize the appeal of Larimore’s idea. People who think investing is difficult and time consuming tend to put it off, and this could get them to act.

That is a good thing, as is the fact that Larimore advocates using index funds, which not only come with lower costs than actively managed ones but typically outperform them.

In addition, using only three distinct funds eliminates potential overlap. When you own many mutual funds, the odds are that the same holding (say Apple) will appear in two or more of them, which could reduce the overall diversification of your portfolio.

And, of course, having only three funds makes rebalancing your portfolio easier, when stock market gains, for example, leave you with a greater percentage of your wealth in equities than you want.

As much as I like this book, I have 2 1/2 bones to pick.

The half first. I could have done without the constant praise from his fellow Bogleheads — who are known only by their initials in the book — for the three-fund idea. It’s a good idea. Fine. No need to keep saying so.

As for my weightier objections, first, I wish Larimore had been more helpful in his discussion of asset allocation. He is clear on the question of what percentage of your stock holdings should be invested outside the United States. His answer is 20 percent, which, intriguingly, is much less than Vanguard recommends. The company says you may want to have 40 percent of your stock holdings in equities not based in the United States.

The reason for the 20 percent figure, Larimore writes, is that he split the difference between Vanguard and Bogle, who stepped down in 1999 as the chief executive of the company, which he founded in 1975. Bogle argued for years that since so many U.S. companies had strong sales overseas, investors didn’t need to hold international equities. (In recent interviews, Bogle has been less emphatic.)

But after repeating that old investment chestnut that you should hold a percentage of stocks equal to 100 minus your age — for example, if you are 35, your portfolio should be 65 percent stocks and the rest bonds — he doesn’t really say more.

The problem with that is twofold. One size does not fit all. And second, subtracting your age from 100 produces what I think is a fairly conservative portfolio. My rule of thumb, if you need one, would be to subtract your age from 110 to establish a baseline for your stock holdings.

My second problem with the book is that the three-fund portfolio he advocates includes no corporate bonds or government bonds from countries other than the United States. If you are going to have international stocks in your portfolio, shouldn’t you have foreign bonds as well?

I have been writing and talking about personal finance as part of my living for more than 30 years, and one thing I believe passionately is that people like me — those who want to help you manage your money better — tend to make things more complicated than necessary.

We do it, I think, not to show off but because we find the subject fascinating. And so we go on at interminable length talking about basis points (one hundredth of 1 percent), inverted yield curves (when long-term debt pays a lower interest rate than short-term borrowings), and decumulation (how you use your savings to fund your retirement.)

As a result, we often scare or confuse people.

Larimore’s prose won’t scare anyone.

It’s accessible and his tone is friendly. And if it prompts people to create a diversified portfolio that keeps fees and taxes to a minimum and gets them to invest for the long haul, he will have performed a great service.