Couch Potato Investing is Dead

While couch potato investing has become the mainstay of many portfolios, a static mix does little to aid in tumultuous times. Supplement your holdings with targeted exposure and alternative assets.


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.

The below is a breakdown of major Asset Allocation ETFs in Canada you can choose from:

Why This Strategy Won't Work

Sure set it and forget it portfolios have worked historically when bonds were yielding in excess of 5%. However, we are now at a precipice where bond yields are at historical lows, with bond prices near historic highs. A period of rising interest rates will negatively effect bond prices - thus bond portfolios, which make up a large portion of these funds.

To top things off, equity and bond correlations are sitting at their highest point in the last 15 years. It used to be that if the stock market sold off, your bond portfolio would provide a cushion. With our current picture, this same safety net is not as apparent.

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 2022 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 ETF portfolios for your unique circumstances and goals.

Similar posts

Want to join our newsletter?

This isn't your standard newsletter. We cover topical stock market developments with actionable ideas you can implement in your portfolio. Subscribe to see what you're missing out on.

Subscribe for free