Can I make money with a Couch-Potato wallet?

The TV junkie portfolio is an indexing strategy that only requires annual monitoring and rebalancing, but offers significant long-term returns.

Couch Potato portfolios invest equally in two assets, common stocks and bonds (through index funds or ETFs), and they maintain this 50/50 split year after year.

In the portfolio of TV addicts, stocks enable growth, while debt instruments provide protection against market volatility.

The room potato portfolios decline less than the market in downturns, but also appreciate less in bull markets.

Building the Couch Potato portfolio

Scott Burns, a personal finance writer and co-founder of Assetbuilder.com, developed the Couch Potato investment strategy in 1991 as an alternative for people who paid money managers to manage their investments. Potato sofa portfolios are low-maintenance, low-cost, and require minimal time to install. 1 2

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The strategy is simple: divide one's holdings equally between stocks (stocks) and bonds (debt).2 Since investments in bonds are designed to be much more conservative than stocks, this approach allows for appreciation, at the same time It reduces the volatility of a portfolio. at low cost and with minimal effort for the investor.

An investor creates a portfolio of television addicts by putting half of his money in a fund of common stocks that tracks the market, such as the Standard & Poor's 500 (S&P 500) index, and the other half in an intermediate bond fund that tracks the Bloomberg Barclays US. Aggregate bond index.

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Although not required, Burns also suggested two additional index funds that correlate to the asset classes described: the Vanguard Index 500 Fund (VFINX) and the Vanguard VanguardFixed Income Short Term Government Bond Fund.2 But there are many other index funds for choose from.

At the beginning of each new year, the investor only needs to divide the total value of the portfolio by two and then rebalance the portfolio by putting half of the funds in common stocks and the other half in bonds.

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Weighing Couch Potato Wallet Returns

Let's take a look at how the TV junkie model (placing 50% of funds in the S&P 500, 50% in the bond index, and rebalancing at the beginning of each year) would have performed relative to the market for values.

In one of his original articles, Burns noted: "If he had followed this procedure from 1973 to the end of 1990, a period of great ups and downs, trauma, mystifications and general anguish, his return would have been 10.29%, only 0.27 % less than the performance of stocks. It would have had about half the ups and downs of the market and would have exceeded 50-70% of all professional money managers "2.

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During one of the worst bear market periods in US history, from 2000 to 2002, the S&P 500 lost 43.1% overall, 3 while the portfolio of TV addicts lost just 6.3% during the same period.

More recently, in late 2018, when the market posted losses for the first time in nearly a decade, the S&P 500 was down 4.52% (allowing dividends to be reinvested).3 In contrast, a portfolio of TV junkies, invested in The Vanguard Total Market Index ETF and iShares Treasury Inflation Protected Securities Bond ETF lost just 3.31%.

However, if the portfolio of television addicts loses less, they also earn less. Regarding the 10-year period 2010-2019, the S&P 500 has returned 12.97% and the addicts portfolio 8.48%. As of October 2019, the S&P is up 19.92%, while the TV addict is cooking at 11.06%, although they are small potatoes, but with a significant delay.

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The bottom line

The portfolio of TV addicts completely adopts a passive management approach over an active one, the justification being all those studies that show that 80% of money managers do not exceed their benchmarks.4

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The TV junkie strategy works for investors who want low cost and low maintenance in a portfolio containing only US stocks and bonds, although of course they can implement a more sophisticated indexing strategy using multiple asset classes and aggregating small international actions to boost returns. But the basic idea is a portfolio of two assets and two investments.

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It is the best strategy to plant it and forget it. While they won't rack up the biggest returns, TV addicted investors get a good night's sleep, knowing they can pay.

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