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Should you ditch your advisor and invest in passive index funds? Find out whether couch-potato investing may be right for you.
We know: it’s not the sexiest-sounding way to invest. But buying a diversified handful of index funds, then letting them do their thing, and checking in only once or twice a year to rebalance your holdings is a surprisingly effective (and low-cost!) way to manage your money. That’s why MoneySense has been showing Canadians how to build so-called “couch potato portfolios” for almost as long as it’s been possible—more than 20 years.
The key enabler for most of today’s couch potato investors was the popularization of index-tracking exchange-traded funds (ETFs). But you can also use mutual funds—and today, there are ETFs that will hold and rebalance whole portfolios in a single investment, allowing investors to be more sedentary than ever.
With this MoneySense guide to the couch potato portfolio, we aim to help prospective couch tycoons sort through the options and create the ideal cost- and labour-saving portfolio.
The couch potato style suits a particular type of investor. Some investors like getting into the weeds of selecting investments; others won’t feel comfortable without an advisor holding their hand. These (and other) types of investors will never feel comfortable on the couch.
To find out if couch potato investing might work for you, ask yourself whether any or all of these traits apply to you:
Sofa, so good? If this sounds like the way you’d like to start investing, or you’re considering transferring your assets from a guided portfolio with an advisor, robo-advisor, mutual fund company or DIY stock portfolio, read on for our story detailing how to set up a couch potato portfolio.
The tools and strategies used by couch-dwelling investors have evolved significantly over the years, giving self-directed investors more options than ever. It’s important to know what’s on offer and structure your portfolio in a way that will help you build wealth for many years to come.
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Thanks for the thorough analysis! I’m still waiting for an investigation of stocks like DGS, DS, DF, DFN, FFN, FTN, LCS, etc, that seem to pay above-average dividends, except at the times when they don’t pay at all because NAV drops below some threshold. My online brokerage offers no research about these companies, and does not rank them at all! Do these companies all follow a similar strategy? Is it a better model than regular ETFs?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.
Absolutely agree. To go one further, some etfs are self balancing. Some examples are VGRO or if your preference is Ishares, XGRO. International, VEGT and so on. Very low MER and buy and forget.
I agree that investing in the entire market is better than trying to pick the few winners. I have found that I paid a lot of money for advice – but if I had just invested it all in VTI – the Vanguard total market – I would come out ahead over time. Advisors say keep money in bonds – but at 3 % – I do better with preferred stock dividends, REITS, and BDCs for income and balance. My investments in Gold (gltr) have stunk as well as cryto – So I trade crypto and do not invest. The one highlight now are commodities – not sure if there is much upside left -but they have done great( BCI /BCD). Best wishes
the idea is interesting and great for young investors who have some money and can set up a regular investment plan but this article does not indicate “how to invest or what kind to invest in”. any additional information would be really helpful.
Your information on Tangerine Core Balanced Income fund is wrong.It should be 70% bonds and 30% stocks.
I’ve been using the MoneySense Couch Potato investment strategy since 2012. I fired my advisor and transferred my money to TD and invested in the TD e-Series funds. It did help that I had worked for a few years as an assistant to one of those advisors, so I wasn’t totally in the dark. Because we were well in our 50’s, we did the 40, 20, 20, 20 plan. I’ve tracked and balanced all this time. Overall, we more or less matched the market year over year. We’ll be retiring in a few years with well over a million dollars in our RRSP’s. I took the education that I learned in Couch Potato and applied it to our TFSA’s and non-registered accounts, buying Vanguard ETF’s. I think I’ll move the RRSP $ into TOCM or VBAL to make things even easier. This is easy peasy and smart.
I still buy stocks directly from a online Brokerage but at some point going this route would be a good idea as I get older.
We are in our 80s, have no company pension, but our investment income (from our portfolio of a dozen stocks) far exceeds our retirement expenses, and our income has continued to grow. If we had invested in ETFs, we might be receiving a third of our current income, and likely need to sell assets to meet expenses. As it is, we never need to sell assets, except when we wish to gift shares or money. Market fluctuations or a drop in capital value, means little, in fact our income grows when the market drops. Invest with ETFs? Never.
I’d like to see the HOT Potato profiled along with recommended ETFs. Perhaps in the “advanced” section. The recommended list and current monthly rotation would need to be updated monthly probably on the MoneySense website so that the proper HOT strategy could be implemented monthly or quarterly. It could be a simple table showing the last month/quarter statistics with the winning ETF outcome for HOT highlighted. (a similar strategy to the IVY portfolio by Meb Faber).
Mary Long-Schimanke, kudos for cutting the costs down and building up a sizeable nest egg. Hopefully you’ve well considered tax efficiency. At that level of RRSP’s, assuming you have other pensions or assets, OAS clawbacks could pose a risk. When we consider ‘cost-efficiency’, often tax efficiency doesn’t get the attention it deserves, even though it is potentially worth far more. Even without clawbacks, holding the right assets in the right place is a huge potential source of alpha. There are full wealth management firms who incorporate said efficiencies, use ETF’s, add in estate planning, and keep advisory fees to the 0.6% level for portfolios of this size. Skipping EM’s also removes a valuable portfolio diversification tool.
Hi Everyone. Im NEW lol and am on disabilty CPP. am trying to make a few hundred $ a month. I have CN rail stock, 1 google alphabet-loser. Some Merck -not good Yet, and Shopify-ding well. Any advice anyone?
Regards
Where are the ’23 and ’24 editions?
Good evening,
For years I have been a big follower of Money Sense and I tell my friends that a large part of my retirement was as a result
of following tips and advice from Money Sense.
I have to say however, I dearly miss the annual review of stocks that Money Sense used to produce. I attribute a large percentage of my retirement fund to the knowledge I gained and stocks I was alerted to from that annual review. It would be great to get those annual top picks again.
All the best, thank you for your work,
Michael Walz