Couch Potato Investing Is Dead

For the unacquainted, couch potato investing consists of a static portfolio of asset allocation funds - either mutual funds or ETFs that investors can contribute to on a consistent basis. The premise behind it is, you know your risk tolerance and should invest in a fixed ratio of equities and bonds that align with this risk tolerance.

Asset Allocation ETF Breakdown

Here are a few examples of the couch potato investing methodology:

  • A risk-averse investor would pick out a conservative asset allocation ETF consisting of 60% bonds and 40% equities, like Vanguard's VCNS ETF.
  • An investor with medium risk tolerance would target a Balanced ETF like Horizons' HBAL ETF.
  • Or, an investor who can stomach more volatility would choose a growth asset allocation ETF of 80% equities and 20% bonds like HGRO or go for a 100% equity tilt like VEQT.

Couch Potato Investing in 2024

While bond yields are back at attractive levels to consider adding into your portfolio, if the past decade has taught us anything its holding only equities and bonds can prove difficult.

Equity and bonds have increased in correlation, meaning selloffs in the equity market may see a similar response in bond markets.

Couch potato investors in 2024 should consider adding alternative investments in their portfolio.

VOO etf

These alternatives include: crypto, commodities, private investments, infrastructure... or really anything that's not stocks or bonds.

So What Are The Pros Doing?

Pension funds, which are arguably investors with the longest time horizon are dropping exposure to traditional assets and increasing exposure into alternatives like private equity, real estate and infrastructure. Bank of Canada survey:

Our analysis reveals that, as the level of interest rates declined, 64 percent of plans in our sample shifted away from the traditional 60/40 mix. In its place, they opted for portfolios with more alternative assets, such as private equity, real estate and infrastructure, but a majority allocation in bonds. For one-third of these plans, the portfolio overhaul is substantial—representing more than 30 percent of all assets.

How You Can Take Control Over Your Portfolio

While pension funds have a long time horizon and different goals than an average investor, their search for uncorrelated assets should have you're-thinking your portfolio mix.

After all, with over 4,000 ETFs to choose from in North America, you can create a diverse, uncorrelated portfolio for yourself with only a handful of ETFs. In fact, there are several uncorrelated assets that ETFs target including real asset funds, hedge funds and crypto funds.

While an asset allocation ETF can make-up the majority of your ETF portfolio, you can look to set aside a portion of your funds for alternative assets and more targeted exposure (e.g., 60% of your portfolio can be allotted to an asset allocation fund, 15% can be made up of alternatives and the remaining 25% use targeted exposure to certain industries, factors or themes).

Ask these questions when building your ETF portfolio:

  1. What's my risk tolerance?
  2. What are my investment goals and time horizon?
  3. What ETFs align with these goals and risk tolerance?
  4. How should I structure my portfolio?

Concluding Thoughts

With 2023 expected to have increased volatility and higher inflation - now is the perfect time to revisit your couch potato ETF portfolio and make your portfolio work for you. Do your research, understand your goals and set yourself up for a successful financial future. If this all seems a little daunting - Investipal is here to help you along and provide you with custom portfolios for your unique circumstances and goals.