What is Couch Potato Investing?

I had a friend ask me this question, What is Couch Potato Investing, and for those starting out, it may not be obvious what I mean when I talk about this variant of an investing concept. There are great primers on Couch Potato Investing out there, read them as well.

Couch Potato Investing

Happy Couch Potato Investors

The Couch Potato Investor label is actually quite descriptive, in that it describes investors who do not wish to be bothered by day-to-day investing issues, they simply want to set up their investments and occasionally come back and take simple actions on the investments in place (in military terms, fire and forget).

Most of the time, Couch Potato Investors are typically Index Investors (i.e. they are not investing in individual stocks, or investment vehicles, they will invest in an area), thus single day changes in the markets become less of a concern (to quote a well-known investor, “I am an indexer, I don’t care what the Index did today”). I suppose you could be an individual stock investor and be couch potato investing, but you’d have to buy something like Berkshire-Hathaway or something like that.

How big or small your portfolio ends up being, is up to you. It is possible to have the greatest couch potato portfolio, which is a two Index Fund (yes, that is possible), but others might argue that you are not diversified enough, and should have more diversity, so typically your portfolio ends up being:

  • Canadian Index – to invest in your country and such
  • US Index – you may as well invest in the economy that is mostly driving the world’s economy
  • International Index – this is murkier water, as there really is no definitive index, so you will need to do some research in this area
  • A GIC-like fund or a Bond Fund – remember Bonds can go down in value in the short-term
  • Maybe a REIT of some kind (but not for a specific city, or you might really get burned when the inevitable correction happens)
  • Cash? Cash is always nice to have around, but don’t put it in your mattress

How much of each you buy is up to you, but keep track of your initial investment percentages, because you will need to re-balance your portfolio (so you take your profits on occasion). What is re-balancing? Every little while (a period you choose typically either every quarter, 6 months or yearly), you look at your portfolio and either:

  • Add funds to the portfolio, to get back to your original investment percentages, by buying more of the lower total value indexes.
  • Sell off higher valued indexes and buy lower valued indexes to get back to your original investment percentages

That is about it, you re-balance, and you sit back on your Couch and eat potato chips, watch Netflix and Relax.

This is meant as a simply primer on the topic, there are many great articles written by other folks outlining good Couch Potato portfolios (using either Index Funds or ETFs) that you can research and simply choose which one you are comfortable using.

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It’s A Wonderful Life (Financially?)

When the holiday standard It’s A Wonderful Life was first released it was pretty much panned as being too treakly sweet, and having no substance. The movie languished for many years, but thanks to a disinterest by its distributor, it started being played by local TV stations at Christmas time, and thanks to that it is now the Holiday Standard that it is today.

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Now the main reason the movie became popular was due to its distributor not charging TV stations to air it, and thus the Local TV had free content to play during Christmas (and thus they made good coin off it with their own advertisements). The rest is history (right Uncle Willy?). There is a great deal to learn about banking in the USA in this movie if you look closely, but that is not the point of this piece. My favorite quote is from Nick talking to

“Hey look, mister. We serve hard drinks in here for men who want to get drunk fast, and we don’t need any characters around to give the joint “atmosphere”. Is that clear, or do I have to slip you my left for a convincer?”

What does this have to do with Personal Finance and Investing? Indulge me this one is another one of my “Hail Mary” stretches of thematic premise.

Strangely Index Funds have been around for many decades (in one form or another), but it is only in the past 10 years or so (maybe less) that they have suddenly come into vogue.

If you are to believe the media Index Funds started with John Bogle and the Vanguard Group, in fact:

Bogle started the First Index Investment Trust on December 31, 1975

So almost 40 years ago Index Fund investing began. The beginnings were inauspicious, but as with “It’s a Wonderful Life” after many “experts” scoffing at the idea, Index Fund investing (or Couch Potato Investing, or one of its many other names) is mainstream and beloved by investors all over the world (OK, now I am pouring it on a bit thick).

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Fool Proof Market Timing System

Before implementing this ground breaking investing heuristic, please read the important offer at the end, before acting.

Many folks have asked me the best way to out-perform the market by predicting market momentum (i.e. Market Timing or finding market trends), to optimize even a couch potato portfolio, and I was blown away when I came across one of the best fundamental market analysis tools, designed for this exact task. You might be surprised to find out you already have heard of this tool, but not used for market trending. Astoundingly, I found that the best possible way to predict how the market trends is to use the tried and true methodology of Biorhythms.

Biorhythms are a scientifically proven method of seeing the trends, momentum, and rhythms of people and now large systems, and this mathematical tool has been used for decades as an excellent way to see the trends and cycles that rule our world. Some have said that the ancient Egyptians knew of  Biorhythms and the ancient Pharaohs had their Wisemen plot their cycles to maximize their productivity and decisions.

What I am suggesting is that this scientifically devised trend predicting heuristic can easily be expanded to Stock Market momentum and predicting trends, as well. Even if you are an Index investor, if you know the cycles of the Index, then you can time the purchases of your Index in a more natural and empathetic method.

How can biorhythms be used to predict Key Price Levels and avoid trade breakouts? The secret insiders methodology is much simpler than you might think. Let’s say we are talking about the TSE/TSX, we know that that it was founded on October 25, 1861 and if we plot the cycles from this date we end up with these two intriguing graphs:

TSE Biorhythms

TSE Biorhythms Part 1

As you can see right now would be an AWFUL time to buy the TSE Index as it is a Triple Low for Intellectual, Emotional and Physical, however if we look even closer:

TSE Biorhythm

TSE Biorhythm Part 2

Wisdom, Passion and Mastery are also almost a triple low as well, so it might be disastrous decision to buy right now.

If you follow the Biorhythms of your Index you may make more sound investing decisions.

Important Offer (** Spoiler Alert **)

OK, if you are still reading this and wondering if I have lost my mind, this is the Big Cajun Man pulling your leg.

This method is absolute Hokum and me making fun of all those Market Timing (pay me lots of money and I will show you) offers I keep receiving. Do Not Use This heuristic in any Financial Dealings in your life! This is an attempt at humor, and should not be followed as financial advice in any way, shape or form!

I was watching a Hill Street Blues episode and they started talking about Biorhythms (a big thing in the early 80’s) and I decided to take it to its next natural level.

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DIY Balanced Funds for Investing

I always find it interesting that most of the times I have spoken to an “investment person” I have been told What you need is a Balanced Fund, which on face value is a good piece of advice. Rarely have I walked in and made the following statements:

  • I love High Tech, what I want to do is buy a single stock that has very high risk and very high potential pay back.
  • I feel comfortable investing in hedge funds, and want to explore that further
  • Bangladesh and Russia look like interesting investment opportunities, lets put all my money there.
  • I don’t trust the stock market, so all I want are Canada Savings Bonds

Most of the questionnaires I have filled in would not show that, however, I do find it interesting that a lot of the wording in these questionnaires are very “Balanced Fund Sympathetic” (but most questionnaires tend to herd the subjects towards the middle of the pack).

While I realize everybody needs to earn a buck, the Balanced Fund gig pays pretty well with the CIBC Balanced Funds having Fund Expenses of 2.55% , someone is living the high life on those fees. I do like the extra 0.10% in “Trading Expenses”, who gets that money? Oh their traders? Mostly I would guess.

So if you read the CIBC (or TD or whoever) Quarterly Portfolio Disclosure you can see that the top few investments in the fund are:

Balanced in What Way?

Balanced Doesn’t Have to Mean Expensive

  • Cash & Cash Equivalents 4.87
  • Government of Canada, 1.50%, 2023/06/01 4.46
  • Toronto-Dominion Bank (The) 2.83
  • Royal Bank of Canada 2.71
  • Government of Canada, 4.00%, 2041/06/01 2.05
  • Bank of Nova Scotia 2.04
  • Canada Housing Trust No. 1, 2.35%, 2018/12/15 1.97
  • Canadian Imperial Bank of Commerce 1.78
  • Korea KOSPI 200 Index Future, December 2013 1.77
  • Suncor Energy Inc. 1.75
  • Bank of Montreal 1.47
  • Japan TOPIX Index Future, December 2013 1.36
  • etc., etc.,

If you were really a wild investor you could simply mimic this list, but I suspect you’d end up paying a lot in trading fees. The other option is to group the list into and see if you can mimic it using simple Index Funds. Yes this might take you about an hour or two, but then you have about the same mutual fund, but with Index Fund (or ETF) Management Fees.

Want to really have fun? You know when I ask that, it’s going to be fun, but the next time your “Investment Person” proposes a similar Balanced Fund (my apologies to CIBC all the banks have expensive Balanced Mutual Funds, not just them) ask them if they could create an investment plan using Index Funds for a lower MER. Wonder what the response to that query might be?

Do you really want to pay a 2.55% fee (every year) ?

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