You may be familiar with the term “couch potato,” which people usually use to describe someone who spends all their time on their couch, eating, drinking, and watching television. However, when applying the term to investing, it describes a strategy that can be the best financial decision a person can make.
The History of the Couch Potato Investing Strategy
Couch potato investing is a simple yet specific investing strategy associated with low costs. A couch potato portfolio can help one achieve their investment goals without taking on any high risks.
The couch potato strategy originated in the 1990s from Scott Burns, a veteran journalist in financial media who is also a blogger running a blog for blog readers that can help someone become a better investor. Burns created this strategy as a simple way for individual investors to earn stable returns over time while putting in little effort, based on the concept of passive investing.
It can be challenging for individual investors or advisors to pick and choose investments that consistently outperform the market over time. Instead, passive investors pick investments that can try to match the total market performance. They invest their money in low-fee funds, such as exchange-traded funds (ETFs) or index funds, which hold most or all of the stocks or bonds in a particular index.
To create a couch potato portfolio using Burns’ approach, people can develop a portfolio of two equally divided investments: an index fund of stocks and an index fund of bonds. The couch potato portfolio intends to be safe while providing a close approximation to the overall market performance. Under the couch potato strategy, bonds should still perform well if the stock market tanks, for instance, and vice versa.
Following the couch potato investment method, investors should check to see which of their two balanced funds is worth more and make the decision to sell some of it off to purchase the other. Practical advice is that if the bonds had a worth more than 50 percent of the portfolio, investors could sell high by selling off some of the bond index funds. They can buy low by using some of that money to purchase more of the stock index fund to return their portfolio to an even split.
What is the Canadian Couch Potato?
After Scott Burns published the original couch potato portfolio, finance writer and portfolio manager Dan Bortolotti popularized and introduced the couch potato portfolio to Canadians. The Canadian couch potato portfolio is similar to the original couch potato strategy, except it adds a bit more diversification by including international equities. ETFs or low-fee index funds that track the Canadian bond and stock market index and the international and United States stock market index comprise the Canadian couch potato portfolio. The way to divide your stock and bond portfolio depends on how comfortable you are with risk and investment.
Some Canadians have turned to the Canadian couch potato portfolio because this investment strategy can help them take their retirement into their own hands. This portfolio type is more financially sound and cost-conscious than investing in mutual funds that may require you to pay expensive management fees.
Canadians can automate their Canadian Couch Potato portfolio using a portfolio management tool, such as the robust one offered by Passiv. This technology makes investing and managing their own portfolios easier by automatically calculating available trades based on the investor’s target portfolio and the money in their account. Passiv’s tool lets users efficiently execute trades in their brokerage accounts with its one-click trading feature. This tool keeps investors from spending time doing calculations and keeping track of spreadsheets, optimizing investments.
By sticking to your couch potato investment plan and using the Passiv tool, you can enjoy low maintenance, low-cost investment, and manage it in an optimized way.