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The Couch Potato Portfolio: Two Fund Supremacy?

The Couch Potato Portfolio

The Couch Potato Portfolio portfolio is made by Scott Burns. 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. 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 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

The difference between the portfolios are the number of asset classes and risk each portfolio has—the Couch Potato Portfolio, which has two asset classes. The number of asset classes increases from that 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 Asset Allocation Of 235 Investment 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.

Asset Allocation of The Couch Potato Portfolio

Scott-Burns-Couch-Potato-Portfolio

 

Returns and risk for The Couch Potato Portfolio

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
Scott Burns Couch Potato219.48%1.75%8.56%8.73%-19.88%2 - low risk0.05%0.91%
Performance of the couch potato portfolios
From Portfoliovisualizer.com

Building The Couch Potato Portfolio

Below you can see which mutual funds or ETFs you can use to build the portfolio. They are the best-in-class funds and ETFs for this purpose. They are low-cost index funds that best capture the characterizes of asset classes needed to construct the portfolio. The article What Is The Best ETF And Mutual Fund? explains how we selected the best funds.

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?

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

  • Has done really well compared to the overall market.
  • Super easy to implement – only two funds and you’re done!
  • Low draw-down because it has 50% in bonds.
  • A great portfolio that you can later build upon using, for example, other model portfolios from Scott Burns.
  • Easy to understand, build and re-balance.
  • 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.
  • The 50% bond (TIPS) allocation can drag down your returns.

Similar Portfolios

The Couch Potato portfolios is a great portfolio. Simple and effective. The main difference between the Couch Potato portfolio and other 2 fund portfolios is that the Couch Potato portfolio uses TIPS as its bond fund, thereby hedging against inflation. Here are a few similar portfolios to the Couch Potato portfolios:

Resources

Go here for a re-balance excel worksheet.

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

Summary

The Couch Potato portfolios are simple and effective and have stood the test of time. But can it give you enough returns?

What is your take on the portfolio – is it too simple?

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