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Updated for 2022, our couch potato guide offers many simple ways to build a balanced portfolio with ETFs—with "core" options for investors who want to keep it simple, and "advanced" portfolios for those who want to push it further.
“The ultimate couch potato portfolio guide” is updated for 2022. And true to form, it’s not a hefty rewrite. Couch potato models don’t require tinkering and guesswork. They are somewhat ‘eternal’. That said, in the series you will find commentary on developments over the last year, plus a link that compares the returns of the core vs advanced couch potato models.
There’s a catch-22 facing many would-be investors that’s keeping them out of the market. On the one hand, they feel they lack the financial knowledge to handle their own investments confidently. On the other hand, they don’t want to rely on the advice provided by financial advisors, who often have a vested interest in selling products that pay them the largest management or trading fees.
Indeed, according to a MoneySense online poll, 46% of respondents said the biggest barrier to investing for the average Canadian is that it’s too complicated or confusing, and 30% said they don’t trust financial advisors.
But there’s a solution that gets around both these roadblocks: Couch Potato investing.
For those new to the idea, the Couch Potato method is a simple approach to building a well-diversified, low-maintenance and low-cost portfolio of stocks and bonds using passive mutual funds or exchange-traded funds (ETFs). As a couch potato investor, you don’t need to spend hours researching various assets in an attempt to pinpoint potential market “winners,” which can be like finding a needle in a haystack. Instead, you own the entire haystack, by investing broadly in the total market overall, while keeping costs down. It’s called index investing, and it’s a passive investment strategy that differs from the typical active investment strategy of most financial advisors.
To use a sports analogy, rather than trying to guess which pro hockey team might win the Stanley Cup in a given year, you own small pieces of the entire league and profit from the entire operation—which includes both winners and losers.
What’s more, by using this easy, low-cost investment approach that aims to match overall market performance—not beat it—you’ll likely do better than if you paid an advisor to invest your money in mutual funds. How so? Simply put, Canadians pay some of the highest fees in the world to invest in actively managed mutual funds; about 2% comes off the top of a typical equity fund’s earnings before you see a red cent. The lazy couch potato investor can build a portfolio for less than 1/10 of that cost—more like 0.2% or less—which means more investment earnings flow into your account rather than your advisor’s.
While the general premise of the Couch Potato remains the same, a lot has changed since MoneySense brought the strategy to Canada some 22 years ago. The portfolios have long included the same four core building blocks—Canadian stocks, U.S. stocks, international stocks and bonds. But portfolio strategy and investment options have evolved, and now there are many more ways to be a Couch Potato.
Watch: BMO ETFs-Investing with Specialty ETFs for Income
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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.