The Canadian Couch Potato is an investment strategy. It is a low-maintenance portfolio designed to deliver profits for your investment through stocks and bonds.
Can it help you invest wisely? That is what we want to find out. By the end of this review, you should be able to make an informed decision whether or not you have to take this investment route.
What is the Couch Potato?
This investment strategy is an indexing investment. The creator of the Couch Potato chose stocks that represent the index of the stock market. As an investor, you are not choosing your own stocks, but you are rather buying stocks that are already part of an index.
It is a simple investing approach where all you have to do is invest. You do not have to overanalyze the stock market and the different companies in it. All you have to do is to deposit your investment in the fund. If your investment strategy is to follow the stock market, then the Couch Potato is not going to suit your investment style.
The creator of the Couch Potato is Scott Burns. He is the co-founder of Asset Builder. The Couch Potato investing strategy has been around since 1991. He created this strategy as an alternative to the typical investment style at that time. During that period, most investors had to pay managers to be able to invest. The fund managers charge fees for their “talent” to pick the right stocks. With Couch Potato, you do not have to pay the fund manager every time you make a trade. Here, you pay fees also, but they are low-cost.
What Is the Strategy?
The strategy is pretty simple. What you have to do is to split your investment into two parts. The first part will be invested in equities. The other part will be invested in bonds. This split has to be equal.
For the stock investment, you have to buy an index that is a common stock fund. An example of this is the S&P 500. For the other half, you will also have to buy an index fund for bonds. An example of this is the Barclays US Aggregate Bond index.
After the initial investment, you have to top-up if you have extra cash. At the start of the new year, you have to re-allocate your funds and make sure that whatever you have left is split between stock and bonds equally.
Can It Help You Invest Wisely?
Yes, it can. The people that track the S&P 500, for example, are extremely knowledgeable people. It means that you are in good hands. As far as investing wisely is concerned, this will come to play if you follow the strategy by heart. You need to be conscientious enough to check your investment every new year and split your money in half.
It works because stocks and bonds are opposites. Bonds are like loans. There are guaranteed returns if you lend your money. If stock prices go up, bonds are likely to go down. If the stocks are down, bonds are likely to go up. As such, you can expect a somewhat balanced performance between these two investments. If one is up, one is down. After each year, you will not lose a lot of money because you slit your investment in half between stocks and bonds.
The Couch Potato investment is a passive strategy: it can be compared to playing slots online Canada because here, the results are random, and you don’t have to think a lot. With the Couch Potato strategy, you simply pick an index and buy that. With slots gaming, you just pick a game (like the White Rabbit slot) and make a bet.
With the Couch Potato, you simply invest your funds in common stock and bond indexes, and then you just leave it like that for a year. The logic behind this approach is that more than 80% of active stock managers do not really exceed their own indexes. 80% of managers not performing well tells us that it does not work. The beauty of this is that there is no need to be active. You do not have to follow the stock trends—all you need to do is to sit back and relax, knowing that all indexes will grow in time.