Why it pays to put your feet up

The Couch Potato portfolio is cheap, but is it effective? Over the past two decades this simple strategy has outperformed the average balanced mutual fund

  4

by

From the January 2017 issue of the magazine.

  4

Couch Potato vs. your typical balanced mutual fund

Methodology: None of the products we use to build our Couch Potato portfolios has been around for 20 years. While we’ve used actual fund returns beginning in the first full month after each fund’s inception, for earlier periods we used the returns of each portfolio’s benchmark index and subtracted the current management expense ratio of the fund. This is an imperfect but reasonable proxy for how index funds would have performed. We also compared our portfolios to their peers using data from Morningstar. Fees and subtle variations in the underlying indexes account for the differences in the returns of the three portfolios. The performance of the Tangerine fund does not need to be adjusted for fees since there are no transaction costs to own the fund and it doesn’t need to be rebalanced. The returns of the e-Series and ETF portfolios assume perfect behaviour: that is, the investor incurred no transactions costs or account fees and rebalanced at the beginning of every year. Any additional costs would have reduced returns.

4 comments on “Why it pays to put your feet up

  1. What would be the make-up of the couch potato fund?

    Reply

  2. These kind of charts are highly misleading for common people who take them seriously. Common people should be given honest and broad based simple information like 100,000 people who actually invested between 10,000 to 200,000 through various options, over the past 20 years,were able to make / lose so much money. The fact is a lot of people dont make any money but the banks and fund managers get richer. People lose hard earned money and no chart reflects that “real trend” and reflect only the good ones.

    Reply

  3. I like the idea of the “back testing” of returns by utilizing the benchmark index, which goes back further, and subtracting the average MER. For the ETF portfolio, it might be nice if you assumed a typical, simple “plain vanilla” couch potato portfolio of, let’s say, 5 ETFs, and assumed 4 trades needed to be placed (two buys and two sells) once per year and subtracted those hypothetical trading costs to give a, possibly, better picture.

    Reply

  4. I’d be curious as to whether the “average balanced fund”/the Morningstar data includes the cost of advice, at which point it is no longer an apples to apples comparison.

    Reply

Leave a comment

Your email address will not be published. Required fields are marked *