Responding to Couch Potato investing skeptics

No one is able to consistently time the markets

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From the December 2014 issue of the magazine.

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couchpotato_322Q: My husband and I have been very happy Couch Potato investors, but I’m questioning the strategy after reading the latest edition of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown, which says massive U.S. money-printing and debt will eventually cause rampant inflation and spiking interest rates. The authors suggest easing out of the stock, bond and real estate markets in favour of gold until all the “bubbles” burst.—Penny Becklumb, Ottawa

A: One of the benefits of the Couch Potato approach is that it minimizes the role of psychology in investing. This book has made you fearful and now you’re considering diverging from your plan. But instead of selling everything, I think you should get back on the couch before your psychology gets the better of you.

Research shows that no one is able to consistently time the markets—not in stocks, bonds, real estate or gold. So I would ignore the latest apocalyptic bestseller and instead stick to your targeted asset allocation. You developed it based on your risk tolerance and time horizon, and it’s intended to give you diversification as the markets rise and fall. I know that this is easier said than done, but in times like this it is exactly what the Canadian Couch Potato would encourage you to do.

Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal finance question? Write to us at ask@moneysense.ca
 

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