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. I present to you a simplistic primer on Couch Potato Investing.
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 a couch potato, but you’d have to buy something like Berkshire-Hathaway or something like that.
- 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.