They make money by getting you to forget the fact that they're losers: From the peak of the dot-com insanity in 2000 to the end of 2005, Wall Street's lost an average of 2.7% of your money every year. By contrast, lazy portfolios consistently beat the market, usually by wide margins. For example, during the bear market of 2000-2002, one of the laziest portfolios beat the S&P 500 by about 15 percentage points each of the three years.

So welcome to our annual update of America's laziest portfolios. Last year ended with the S&P 500 gaining just under five percent. The lazy portfolios all beat that benchmark.

And for the third year, Ted Aronson's lazy portfolio came out on top with a 13.7% return. Aronson's rare among America's 70,000 money managers. He discloses his portfolio. The other 99.9% are too embarrassed to expose themselves. Aronson heads AJO Partners, managing $23 billion in institutional money.

Before reviewing his lazy portfolio, his rebalancing strategy and what he sees ahead in 2006, Ted opened with a few caveats:

Everybody knows asset allocation, not the individual funds you pick, is the key to portfolio returns. In 2005 Aronson's portfolio of 11 funds was made up of 40% domestic equities, 40% foreign stocks and 20% fixed income. The portfolio returned 13.7%. Here's his analysis of these sectors and their 2005 performance:

Aronson says "nothing about last year surprised me, except the extent of Pacific and emerging market returns. But now my instincts are to head in the opposite direction."

Aronson said it's time for a little rebalancing. Get "back to 40% in domestic equities (last year's weights; add a few percentage points, especially to S&P 500). And much less in international, back down to 30% (from nearly 44%, the current weight after the strong performance in 2005). Spread it out equally among emerging markets (10%), Pacific (10%), and Europe (10%)."

The "international stocks' performance is too good to be true, or at least too good to continue," says Aronson. "Over the past three years the emerging markets index fund is up almost 38% annually, compounded. Pacific fund compounded at a 'mere' 26%. As the late Herb Stein said, if something is too good to go on forever, it won't."

Aronson reminds us that in his day job, he's "a bottom-up stock picker and benchmark hugger." Once the portfolio's domestic equities and fixed income are back to 40% and 30% respectively, "leave well enough alone."

So going into 2006, he has a new, bigger cash position. Cash is his "buffer, a hedge. Investors should be prepared to act when things look the gloomiest." And while he says he doesn't expect a crash, "there could be a one (rates spike up, emerging markets melt down, small-cap value loses lead to small-cap growth ...). If any of these categories crash, the cash should be deployed earlier than a year from now."

Aronson warns: "All this implies a 20% turnover, certainly far from buy-and-hold. But portfolio rebalancing is a sure-fire way to limit risk and improve return even though there will be capital-gains taxes involved. By definition, the best performing investments rise in influence in a portfolio. So when the inevitable reversion to the mean (fancy way of saying, what goes up comes down) occurs, the exposure is amplified, and the pain worse. Think March 10, 2000!"

This year we asked Morningstar's research analyst Sumita Ghosh to help us, providing an independent comparison of five lazy portfolios we track.

These are all pure-play buy-and-hold lazy portfolios from respected experts. All beat the S&P 500. The Margaritaville Portfolio is from Scott Burns, columnist with the Dallas Morning News who alerted us to his earlier Couch Potato Portfolios. The No-Brainer Portfolio is from money manager and neurologist Dr. William Bernstein. The Coffeehouse Portfolio is from money manager Bill Schultheis. And the Yale Portfolio is new, coming from David Swenson's "Unconventional Success."

One final note: At 13.7%, the Aronson Portfolio is on top of the five portfolios. Yet some may challenge whether it's really "lazy enough," with the rebalancing and turnover. Consider this: Even if Aronson's portfolio was totally "lazy" and not rebalanced from last year's allocation, his returns would still have been 11.5% instead of 13.7%. So no matter which lazy portfolio you pick, you'd have beaten the S&P 500's 4.7% return last year.

Source: Morningstar Inc. Data through Jan. 10.