Skip to main content

Armchair investing: Now there's an idea whose time has come.

No more obsessing over the market's manic mood swings. Just plunk your money into a short list of mutual funds and you'll sleep well at night, confident that your stake will grow at an acceptable rate until that day 10, 20, or 30 years from now when you retire.

Douglas Gerlach, author of the book

The Armchair Millionaire: Build and Protect an Extraordinary Portfolio, Even on an Ordinary Income, by Following One Commonsense Investing Strategy

and cofounder of a

Web site by the same name, says all you need to make armchair investing succeed is the discipline to save regularly. Gerlach, a popular speaker on the topic of online investing, has long taken an irreverent, no-worries approach to financial planning, similar to what you'd expect of the Gardner brothers, who founded

Motley Fool


As for his simplified investment technique, it largely relies on an idea long championed by financial planners called

dollar-cost averaging. Put simply, dollar-cost averaging theorizes that if you add a set amount to a highly diversified basket of stocks each month, over time your nest egg will grow. That growth will come thanks to the market's long-term tendency to rise. Short-term corrections, hiccups, and panics matter little, so the theory goes, because in down markets your monthly contributions will buy more shares, which are destined to rise long term.

The only time dollar-cost averaging doesn't work, again according to the theory, is during a prolonged downtrending market such as occurred in the '70s.

Otherwise, it's just a matter of picking the right funds and then resisting the tendency to tinker with them in the short term. So how can you be sure your basket of stocks is diversified enough to accurately track the market as a whole?

The Armchair Millionaire

contains a simple model portfolio, which was devised by John Bowen, CEO of the investment advisory firm


and co-author of

TheStreet Recommends

The Prudent Investor's Guide to Beating the Market.

Bowen says it's possible to build a million-dollar portfolio by dividing your assets equally among just three index funds. The first would include a fund like


Fidelity's Spartan 500 Index that mimics the

S&P 500

. The second fund might be something like

(MASKX) - Get iShares Russell 2000 SmallCap Idx I Report

Merrill Lynch's Small Cap Index A that tracks the

Russell 2000

index of small-cap companies. And the third might be a fund like

(DIISX) - Get BNY Mellon Intl Stock Index Inv Report

Dreyfus International Stock Index that duplicates the

Morgan Stanley EAFE Index

. The latter is composed of top companies located in Europe, Australia and the Far East.

The three funds I named are just examples. No endorsements implied. If you'd like to window shop for comparable index funds, try the excellent

screening tool at the Web site

, and use some of the

calculators at

to help you compare and evaluate them. Be aware that it does pay to shop around because returns of index funds can vary slightly year over year, even though the funds supposedly are tracking the same indices. Over time, small differences of a percentage point or more can have an amplified effect on your portfolio's overall value.

Write a Check to Yourself

When you find three index funds you like, the idea is to keep adding to the pie with each paycheck.

The Armchair Millionaire

recommends writing the check out when you sit down to pay your other monthly bills. Then relax and let the market do the work (some might choose to rebalance their three-fund portfolios at the end of each year, so the amounts in each fund remain roughly equal).

Because index funds themselves only change their holdings for rebalancing and adjustments made to reflect changes in the index, you won't face a numbing capital gains tax bite as you might with a high-turnover managed fund. Which means this strategy could work fairly well in a taxable account, as well as in a tax-deferred account such as a 401(k) or IRA. That's good news for anyone whose 401(k) options are limited by their employers and for those who routinely max out their IRA contributions.

How long will it take to amass a pile big enough to pay for that condo in Fiji?

The Armchair Millionaire

has a calculator that tells you how much you need to put into the three funds each month in order to reach seven figures. For example, if you already have $50,000 in a tax-deferred account and $50,000 in taxable savings, and you're able to contribute $800 per month -- roughly the lease payment on a new Jaguar -- to savings and retirement accounts, you'll hit the million mark in 15 years.


also has its own "Who-wants-to-be-a-millionaire" online calculator that's part of a long list of helpful financial planning tools in its

calculators section. Also, if you already own mutual funds, financial planning sites such as

Financial Engines and contain calculators that will predict their worth in the years ahead (read about them in this previous Tools of the Trade


Play It Safe

Ultimately, the success of armchair investing would seem to hinge on two important factors. First, the idea is based on historical data, which, as the saying goes, can never guarantee future results. After all, who knows, we could be entering a period of horrendous volatility or a 10-year bear market. Second, you should ask yourself what you would do if by chance the market nose-dives 40%-50% at some point in the program. Would you hold, or would you sell? If you were tempted to sell, you'd be defeating the whole purpose of the strategy.

One way financial counselors tell you to get around this latter problem is to gradually shift some of your retirement horde into more conservative investments like bonds and cash as you approach retirement. Mutual fund giant


has a useful, free, online

retirement planner that can help you decide how to allocate the assets in your portfolio. To complete it, you fill out an online questionnaire that helps you figure out your risk tolerance, your investing savvy and the amount of income you need in retirement.

Some of the questions can be quite telling, such as do you sell off parts of your portfolio when the market turns choppy, or do you buy stocks based solely on advice from friends? Crunching through this data, the planner then creates a pie chart showing you what percentage of your nest egg you should place in cash, stocks, bonds and so forth. (Naturally, you'll also get a list of recommended Vanguard funds.)

Your own attitudes toward investing, your needs, as well as market conditions, all change over time. So it's a good idea to return to a planner like the one at Vanguard at least once a year. The great thing is, of course, that you can do it all while seated in an armchair.

Mark Ingebretsen, author of the newly released book,

The Guts and Glory of Day Trading: True Stories of Day Traders Who Made (or Lost) $1,000,000, has written for a wide variety of business and financial publications. Currently he holds no positions in the stocks of companies mentioned in this column. While Ingebretsen cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from