Couch Potato Portfolio: How to set it up

Couch Potato Portfolio: How to set it up

We show you what ETFs and funds to buy

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If you’re interested in becoming a Couch Potato, you must first decide whether you will be investing only once a year or through regular monthly contributions.

If you’re investing once a year, you should use exchange-traded funds or ETFs. These are index-fund-like investments that trade like stocks on major stock exchanges. Many ETFs charge ultra-low management fees (think 0.2% or less), but to buy or sell them you have to pay a brokerage fee just as if you were buying a stock. The fees aren’t huge in themselves — $9.95 is typical — and if you’re investing once a year, they are a minor annoyance when you consider the low management fees you’re paying.

On the other hand, if you want to contribute monthly, paying $10 a pop for each transaction can send your overall bill soaring. You’re better off to use index mutual funds. You’ll pay a bit more in management fees, but you won’t face brokerage fees on every contribution.

For purposes of illustration, we’ll assume you’re using our Global Couch Potato strategy (for other strategies, see Meet the potato family).

Once-a-year investors: Open a discount brokerage account. Deposit your money, then divide the total amount by five, and buy these ETFs:

The first pile

• (20% of your money) goes in the iShares Core S&P/TSX Capped Composite Index ETF [TSX: XIC].

The second pile

• (20%) goes in the iShares Core S&P 500 Index ETF [TSX:XUS].

A third pile

• (20%) goes to iShares Core MSCI EAFE IMI Index ETF [TSX:XEF].

Both the fourth and fifth piles

• (A total of 40%) go in the iShare Core High Quality Canadian Bond Index ETF [TSX:XQB].

Once a year, buy and sell your ETFs (or add new money) to get your portfolio back to its 20%-20%-20%-40% split.

The net result of all this is a very low-cost portfolio that has 60% of its money invested in a wide range of stocks in Canada, the U.S. and around the world, and 40% invested in Canadian bonds.

Monthly contributors: For purposes of illustration, we’ll use TD e-Series Funds, because they’re particularly cheap. As above, you start by transferring your money into the account and splitting it up into five piles:

One pile

• (20% of your money) goes in the TD Canadian Index Fund [TDB900].

The second pile

• (20%) goes in the TD U.S. Index Fund [TDB902].

The third pile

• (20%) goes in the TD U.S. Index Fund [TDB911].

Both the fourth and fifth piles

• (40%) go in the TD International Index Fund [TDB909].

Once a year buy and sell your funds (or add new money) to get them back to their original split.

That’s it. Now sit back, put up your feet and enjoy life as a couch potato.

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