The Couch Potato Portfolio: Two Fund Supremacy?

The Couch Potato Portfolio

The Couch Potato Portfolio portfolio is made by a 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 a basic 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 highlights 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 2 asset classes. The number of asset classes increases from that as you go down the list. The 10 Speed Portfolio has 10 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 9 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 NameNumber of asset classes1 year return 2019YTD (incl. December 2019)10 year returnDrawdownRisk LevelMarket CorrelationDollar Value
S&P 500 (Benchmark)131.25%31.25%12.97%-37.71%5 - very high risk0.99$167,045.76
Scott Burns Couch Potato217.76%17.76%8.48%-19.94%2 - low risk0.94$109,009.84

 

 

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)

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.

Summary and your next steps

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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