What is a couch potato portfolio? The concept of the couch potato portfolio was invented by personal-finance writer Scott Burns. He was convinced this approach would deliver higher returns than any actively managed portfolio. In fact, so fed up were investors with their poor performing actively managed funds, Vanguard gathered more money from investors last year than the rest of the asset management industry combined! Because the way the world invests is changing… Passive investing strategies — i.
Passive investing means buying an index fund and then pretty much ignoring it. It requires minimal time and effort to set up, is usually your least expensive investment option, and returns you more money in the long-run than any other investment strategy — as long as you commit to being lazy and leaving your funds well alone.
But other than that, leave it alone! Commit to investing regularly and over the long-term — because of dollar cost averaging, and the fact the markets reward long-term investors most handsomely. Avoid complex ETFs that carry high, unnecessary fees — they defeat the object entirely! The average balanced fund returned less in the same period 9.
From to the sophisticated couch potato strategy returned The average equity index returned less in the same period The Canadian stock market did well overall, due to energy and commodities exposure. Every asset is negative in , except for the real asset fund.
In an environment of rising rates, the longer-dated treasuries ZFL. TO and ZTL. The longer-duration bond ETFs have more price sensitivity to rising rates. Here is a comparison between the Advanced Portfolio models from January through September Once again, the inflation fighters can be a drag on portfolio performance during disinflationary times what we experienced from to Early days for inflation?
We might be in the early innings of inflation. Stagflation—when inflation is high and growth is slowing—can last for several years. Just look at the stagflation of the s as it seeped into the s more on that later. Investment assets have yet to see ongoing inflation or stagflation pricing, although asset performance in and is hinting at how they might react in a prolonged inflationary environment. We are currently in a stagflationary environment. But, of course, no one knows if we are in the early stages of stagflation or if the central banks can tame inflation by raising rates—and hence, cool off price increases.
Core vs. The market appears to be thinking that inflation might be tamed. The inflation-fighting assets began to fall in the second quarter of Over the long run, the BMO Balanced portfolio delivered an annual return of 5. We would expect the core model to outperform in a disinflationary period, or when inflation is mostly under control.
If we remain in an inflationary or stagflationary environment, the advanced couch potato model should outperform the core portfolio. All that said, there is often very little cost to adding that inflation protection, according to what I see in my research. And in most periods between the s and now, adding gold, commodities and REITs as increased the performance of a balanced portfolio. Here is a wonderful visual presentation on inflation, stagflation and deflation. The commodities allocation is not available on Portfolio Visualizer from , so I used gold as the inflation-fighter.
The balanced portfolio with gold outperforms the traditional balanced model by 0. Once again, whether or not to add gold and commodities is a personal call for the self-directed investor. For my wife and myself, I hold gold, bitcoin, energy stocks, commodity stocks and commodities in modest amounts in our balanced growth portfolios, creating my own version of an all-weather portfolio.
Being in semi-retirement, I need and want that financial and emotional protection from raging inflation or stagflation. MoneySense contributor Dale Roberts is a proponent of low-fee investing, and he owns the blog cutthecrapinvesting. Find him on Twitter 67Dodge for market updates and commentary, every morning.
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