January 8 2008 by Ellen Roseman
It’s become popular to say investors can profit by creating a simple portfolio of low-cost index funds traded on a stock exchange. It’s less expensive and easier than buying stocks or actively managed mutual funds.
The latest is Larry MacDonald at Canadian Business with his “one-minute portfolio,” a mix of just two ETFs (large-cap Canadian stocks and bonds).
MacDonald’s portfolio is even simpler than the Couch Potato strategy laid out in Money Sense magazine in March 2006, which includes some U.S. or international equity index funds. If you intend to retire in Canada, you can probably get away with keeping all your investments here.
There’s also the Easy Chair portfolio, developed by Rotman business professor Eric Kirzner and tracked by the Toronto Star’s Portfolio Doctor column. Back in 1997, Kirzner predicted that he could earn a return of about 8 per cent over time on an annual compounded basis. And he was right.
His basic and conservative asset allocation is 20 per cent cash, 30 per cent Canadian bonds, 35 per cent Canadian equity and 15 per cent U.S. equity.
“I picked an asset allocation that is classic,” notes Kirzner. “It is a balanced portfolio and quite defensive. Twenty per cent in cash is quite high but if I was anticipating the year 2000 crash I would have gone 100 per cent in cash!”
So, what’s the appeal? Why not be a “gamer” a la Jim Cramer, constantly buying and selling and following hunches and changing your mind? Isn’t the couch potato diet just like it sounds — bland and starchy?
Well, if you’re not a couch potato yet, here are some reasons to warm up to the idea.
–You’re not paying a manager to lag the index
–You’re not trying to outguess the market
–You’re saving time and emotional energy
Scott Burns, a columnist for the Dallas Morning News, came up with the concept in 1991. He says it’s important to be a dull investor.
no complicated accounts
no diligent reading of the financial press
no phone calls from brokers with opportunities
no meetings with investment advisors demonstrating their constant supervision of accounts.
and very simple tax returns.
It also means more time at the beach, if you are so inclined. Or more time being a couch potato.
With the stock markets so wild and crazy, a couch potato plan — boring though it may be — starts to look very appealing.
Give us your thoughts on how the lazy approach works for you.