– The “couch potato” portfolio is so named because it takes a “passive”
approach to investing. It is predicated on the theory that markets are
efficient, or smarter, than any single person. Studies have shown that the
passive, or couch potato, investment strategy on average beats about 80% of
professional money managers over time. For time-squeezed Millennials who
would rather do almost anything else than manage money, this strategy can
make a lot of sense.
What’s the difference between “active” and “passive” investing?
When it comes to investment strategy, investors are generally in one of two
camps, active or passive. Active managers try to beat the market by buying
and selling securities in hopes of making a profit. Passive investors
simply buy the market. In a passive, or couch potato, portfolio, you buy a
piece of the entire market instead of trying to make a call on which
company or asset class will do better than another.
To accomplish this, an investor would buy a series of both equity and
fixed-income index mutual funds or exchange-traded funds (ETFs) and simply
hold them. Exchange-traded funds are cheaper than mutual funds, with an
average MER of 0.5% compared with 2.5% for actively managed mutual funds.
Straight off the hop, you put 2% more in your pocket and you have achieved
diversification, because you have bought the entire market.
What are the risks?
There are investment risks associated with the couch potato portfolio, as
there are with any investment strategy. If the market drops steeply, as it
did in 2008, your portfolio will drop right along with it. But the opposite
is also true. If the market rallies, your portfolio will rise in value.
Because your various holdings are likely to change in value over time, once
a year, you should “rebalance” your couch potato portfolio back to its
original asset weightings.
What are the costs?
The question is whether you believe that active managers can provide return
over and above the market after fees, or whether markets are in fact
“efficient” and will outperform an active-management style over the long
term. If you select the passive, couch potato portfolio, be prepared to
stomach the ups and downs of the market solo. If you select actively
managed mutual funds, be prepared to pay a higher fee and have the support
of a professional money manager or advisor during market turmoil.
Personally, I believe in using both strategies. I deploy what’s called a
passive strategy with an active overlay, buying the market and making only
small calls in an attempt to outperform.
How to get started
Create an investment plan that matches your risk-tolerance level. For
example, it makes absolutely no sense to say you’re a conservative investor
and then jump into trading penny mines on the TSX Venture Exchange. Once
you’ve set your investment plan in motion, track it weekly or monthly.
If you select the passive, couch potato portfolio, be prepared to stomach
the ups and downs of the market solo. If you select actively managed mutual
funds, be prepared to pay a higher fee and have the support of a
professional money manager or advisor during market turmoil. Personally, I believe in using both strategies. I
deploy what’s called a passive strategy with an active overlay, buying the
market and making only small calls in an attempt to outperform. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
© 2017 by the Fund Library. All rights reserved. Reproduction in whole or
in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.