The Couch Potato Portfolio, Two Fund Supremacy?

The Couch Potato Portfolio

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The Couch Potato portfolio can be built with 2 ETFs. The portfolio is exposed to 50% bonds and 50% equities. It is a medium risk portfolio.

For the past 10 years, the Couch Potato portfolio has returned 8.56% with a standard deviation of 9.86%. Last year it returned 19.48%. The dividend yield is 0.97%. The 30-year return is 8.73%. Year to date the Couch Potato portfolio has returned -0.95%.

Here is how you build the Couch Potato Portfolio

  • 50.00%  US Total Stock Market (VTI)
  • 50.00%  TIPS (VTIP)

You can find more details about the Couch Potato portfolio including its drawbacks and more advanced ways of constructing a Couch Potato portfolio below.

What is the return for The Couch Potato Portfolio?

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
Scott Burns Couch Potato2-1.2619.488.56%8.7320.04%
Balanced Portfolio 50/5020.6219.768.71%8.6610.04%

The Couch Potato Portfolio is a Lazy Portfolio

The Couch Potato Portfolio is one of the  Lazy Portfolios, which means it is easy to implement and maintain while producing a respectable return. Our articles Lazy Portfolios and 5 Reasons Why A Lazy Portfolio Is Right For You highlight the benefits and pitfalls of lazy portfolios.

The Couch Potato Portfolio by Scott Burns is just one of 9 portfolios that he has constructed. The other Scott Burns portfolios are:

  • The Couch Potato Portfolio
  • Margarita Portfolio
  • Four Square Portfolio
  • Five-fold Portfolio
  • Six Ways From Sunday Portfolio
  • Seven Value Portfolio
  • Seven Value 2 Portfolio
  • Nine Emerging Portfolio
  • 10 Speed Portfolio

You can see these portfolios in our article Scott Burns The 8 Other Couch Potato Portfolios.

The difference between the portfolios are the number of asset classes and risk each portfolio has. The Couch Potato Portfolio has two asset classes. The number of asset classes increases from there as you go down the list. The 10 Speed Portfolio has ten asset classes.

You can find the asset allocations all the portfolios right here on portfolioeinstein.com under Scott Burns The 8 Other Couch Potato Portfolios.

You can also check out Scott Burn’s assetbuilder site, where they are listed as well.

Performance of the nine portfolios by Scott Burns can be found under Investment Portfolios and Scott Burns The 8 Other Couch Potato Portfolios.

Below is Scott Burns explaining how simple investing works.

Scott Burns is a former financial columnist at the Dallas Morning News. He also co-founded Assetbuilder.com, which uses The Couch Potato Portfolio as an underlying portfolio.

I love going back to Scott Burns’ website and read his insights into personal finance and investing. Scott Burns’ advice on personal finance follows the same path as his advice on investing. Personal finance needs to be simple and straightforward if you want to read more by Scott Burns; you can find many of the best articles on his website.

Description of the Couch Portfolio

The Couch Potato portfolio is straightforward. It holds two asset classes:

  • TIPS, treasury inflation-protected securities
  • A Total US Stock market allocation

The couch potato is extremely easy to maintain and is also very cheap to hold.

It is also conservative because it holds 50% of its allocation in very safe bonds, which are inflation-protected. The bonds are called TIPS. It stands for Treasury Inflation-Protected Securities. It is an allocation that is fit for retirees as they need to protect their capital while younger investors can take more risk. The younger investors can hold more of their allocation in stocks.

If you are a younger investor, you definitely want to hold a higher allocation of stocks in your portfolio.

There are many alternatives to the Couch Potato portfolio. The most similar are the balanced portfolios. The balanced portfolio consists of a bond allocation and a total US stock market. The balanced portfolios exist with various allocations. The allocations range from 90% stocks and 10% bonds, and all the way to the opposite, 90% bonds and 10% stocks. An added benefit of the balanced portfolios is that you can build a Socially Responsible Investment portfolio from the balanced portfolio recipe. You can read more about socially responsible portfolios in our post here.

We have benchmarked all balanced portfolios, so you can quickly get an overview of how a particular stock/bond allocation affects your portfolio.

You can find them all in our article The Balanced Portfolio: Portfolio Grand Daddy

Another alternative to the Couch Potato is the Three Fund Portfolio. This portfolio adds a third and probably wise allocation to international stocks. You can find more on the Three Fund Portfolio in our article Three Fund Portfolio: Did Awesomeness Find Trinity?

Performance chart for The Couch Potato portfolio

Performance of the couch potato portfolios

The Couch Potato portfolio is a solid performer! Remember, this portfolio has 50% in bonds. It has half as much volatility (swings in stock price) as the S&P 500.

It even beats a standard balanced 50/50 portfolio making a case that TIPS are a good asset class to hold.

Asset Allocation of The Couch Potato Portfolio

Scott-Burns-Couch-Potato-Portfolio

Building the portfolio(s)

Below you can see the asset allocations for the portfolio(s). You can also see if the portfolio(s) has a socially responsible investing (ESG) variant portfolio. You can read more about socially responsible investing (ESG) investment portfolios in this post.
To build the portfolio(s) yourself, go to our best in class ETF page to see which ETF you should choose for a particular asset class. There you can also see which socially responsible investing ESG ETFs you should select.

Asset allocation for The Couch Potato Portfolio

  • 50.00%  US Total Stock Market (VTI)
  • 50.00%  TIPS (VTIP)

How we select the right ETFs

There are a lot of ETFs out there. Most of them can be discarded because:

  • They are too expensive
  • They hold too few assets and are therefore too illiquid
  • They do not meet the criteria for representing the asset class they are supposed to mirror.

We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?

If you are a European investor you need to buy European ETFs. We list 47 best ETFs in our article What Are The Best ETFs For European Investors? (Here Is 47).

As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.

You can find the socially responsible investing ESG ETFs in the same article.

Advantages and disadvantages of The Couch Potato Portfolio

Advantages

  • It has done well compared to the overall market.
  • It is super easy to implement – only two funds, and you’re done!
  • The Couch Potato has low draw-down because it has 50% in bonds.
  • It is an excellent portfolio that you can later build upon using, for example, other model portfolios from Scott Burns.
  • The Couch Potato investment portfolio is easy to understand, build, and easy to re-balance.
  • The Couch Potato has many options for tweaking the asset allocation.

Disadvantages:

  • The Couch Potato portfolio Lacks international exposure. To get international exposure, you need to step up the ladder to the Margarita Portfolio. You could also look at one of the Three Fund Portfolios.
  • The 50% bond (TIPS) allocation can drag down your returns.

Similar Portfolios

The Couch Potato portfolios is a great portfolio. Simple and effective. Here are a few similar portfolios to the Couch Potato portfolios:

The recent book by Tailor Larimore explains the virtues and advantages of the three-fund portfolio very eloquently.

Resources

Scott Burns maintains a beautiful and informative website over at couchpotatoinvesting.com

Find over 1000 articles on the topic of the Couch Potato

Here is the Keep It Simple podcast from the firm, Assetbuilder, that Scott Burns founded.

If you are Canadian why not look up CanadianCouchPotato

Suggestions for your next steps

Finding the correct portfolio is hard. Maintaining your portfolio is also daunting. If you are still in doubt about which portfolio to choose, we suggest you read our article How To Invest Money: 5 Simple Steps That Work For Anyone

If you have already committed to a portfolio – good for you! If you need help maintaining the portfolio you will find our rebalance worksheet useful. Rebalancing your portfolio lowers your risk and may even provide higher returns in the long run.

You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool

Related questions

What is a 50/50 portfolio?
A 50/50 portfolio has 50% in stocks and 50% in bonds. It is also called a balanced portfolio.

What does an aggressive portfolio look like?
An aggressive portfolio holds more than 75% stocks.

What is the most aggressive investment?

The most aggressive investment is all 100% stock portfolios. Some asset classes have greater returns than others. You can find the most aggressive portfolios on our overview page

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