Use the Couch Potato strategy to build a low-cost and well diversified portfolio, and then download these free tools to rebalance your stock and bond holdings back to the perfect mix.

At the beginning of every month I contribute some saved cash to my Couch Potato and rebalance my mix of stocks, bonds, cash, and other assets. It’s a habit I’ve stuck to over the years to build my savings.

What the heck is a Couch Potato?

No, I’m not stuffing spuds into my Ikea sofa.

couch potato
Simply, the Couch Potato is an investment strategy that’s keen on keeping costs low by building a diversified portfolio of index funds. Building a Couch Potato portfolio is super simple, and many Nobel laureates have recommended indexing as a way to build wealth.

After learning how actively managed mutual funds charge hidden fees to us investors, sucking our savings dry, I took control of my moolah and moved it into four index funds which essentially return the same results as the world’s stock and bond markets.

“The strategy can reduce a typical investor’s costs by as much as 90%, while at the same time beating the vast majority of mutual funds and professionally managed accounts,” writes Dan Bortolotti in his exceptional blog, Canadian Couch Potato.

The basic components of a Couch Potato portfolio often look a little like this:

Equity index fund 20%
International equity index fund 40%
Bond index fund 40%

Asset Allocation = 60% Stocks, 40% Bonds

A mix of 60% stocks and 40% bonds is common in a balanced Couch Potato portfolio, but your asset allocation may be different.

Since Squawkfox is read by Americans, Canadians, Australians, Europeans, and my dog (who is half Australian), I’ll share some international resources for getting your spud on and starting your own Couch Potato.

How to build a Couch Potato Portfolio

The good news is a diversified and low-cost Couch Potato portfolio can be built (and rebalanced) from any sofa in the world. Here’s how to get started:

Resources for Everyone

Two little books with a lot of big value.

The American Couch Potato

Financial writer Scott Burns started writing about Couch Potato portfolios back in 1987, so there are plenty of American resources available freely online.

  • Couch Potato Cookbook: AssetBuilder.com serves up a series of model portfolios created by Scott Burns. Lots of great information on this site to show you the proper potato way.
  • The Bogleheads Lazy Portfolios: Created by fans of John Bogle. Site includes a forum, sample portfolios, and a lot of amazing indexing stuff for beginners too!

The Canadian Couch Potato

You know when an American TV show mentions Canada and the whole country of Canuckland cheers in a unified yelp of EH? Gotcha! Canadians like to be noticed, included, and hugged. Well, thanks to financial writer Dan Bortolotti and MoneySense magazine, there’s plenty of Canadian potato resources for Canuck investors to cheer about.

  • Canadian Couch Potato FAQ: To get all your loonies lined up, start your learning by reading Dan Bortolotti’s blog, Canadian Couch Potato — voted the #1 investing blog by The Globe and Mail readership.

Yes, I have a school girl’s crush on Dan’s financial writing. Go read him. Seriously.

Rebalance Your Couch Potato Portfolio

Phew! Now back to the real reason I wrote this post — portfolio rebalancing tools. After picking your potato and deciding on an asset allocation, you’ll notice that over time your potato may get a little baked. Turns out the market moves, and sometimes stocks will be smokin’, other days bonds will be boomin’. So basically, you’ll have to bring your potato back in line to your target asset allocation by rebalancing your funds.

couch potato rebalance
Check out Why Rebalance Your Portfolio?, How Often Should You Rebalance?, and The Power of Rebalancing During a Volatile Market for some great background information on, well, rebalancing!

One of the easiest ways to rebalance is to add new money to the funds that need topping up. I do this every month ’cause that’s how often I contribute to my portfolio. You may have a different rebalancing schedule, and that’s OK!

The Problem

The problem is figuring out how much moolah to stick in each fund. All the big finance books say: Make a spreadsheet. Great idea! So I did. I made a Rebalancing Spreadsheet for a few of the popular Couch Potato portfolios in the United States and Canada.

Whether you’re a seasoned investor with an existing Couch Potato or a newbie getting the pieces together, one of these rebalancing spreadsheets should work for you. If your preferred portfolio isn’t included in my humble list, go ahead and edit any of these spreadsheets to work for you.

Download and rebalance away!

American Portfolio Rebalancing Spreadsheets

These model potato portfolios were popularized by Scott Burns and are outlined on AssetBuilder.com. Each portfolio builds on different asset allocations and should be selected based on your risk tolerance. Check out AssetBuilder’s Portfolio Selection to pick the right potato for you.

U.S. Basic Couch Potato

A potato with a simple 50/50 mix of U.S. equities and U.S. bonds.

U.S. Basic Couch Potato Rebalance
Download: U.S. Basic Couch Potato Rebalancing Spreadsheet (XLS)

U.S. Bonds 50% Vanguard Inflation-Protected Securities (VIPSX)
U.S. Equity 50% Vanguard Total Stock Mkt Idx (VTSMX)

U.S. Margarita Couch Potato

It’s a three-way tie! This model portfolio includes international equities for a little more diversification outside of the United States.

U.S. Margarita Couch Potato Rebalance
Download: U.S. Margarita Couch Potato Rebalancing Spreadsheet (XLS)

U.S. Bonds 33.3% Vanguard Inflation-Protected Securities (VIPSX)
U.S. Equity 33.3% Vanguard Total Stock Mkt Idx (VTSMX)
Intl Equity 33.3% Vanguard Total Intl Stock Index (VGTSX)

U.S. Four Square Couch Potato

A healthy helping of bonds and equities from around the world and within the United States. (Source: Bitcoin mit PayPal kaufen)

U.S. Four Square Couch Potato Rebalance
Download: U.S. Four Square Couch Potato Rebalancing Spreadsheet (XLS)

U.S. Bonds 25% Vanguard Inflation-Protected Securities (VIPSX)
U.S. Equity 25% Vanguard Total Stock Mkt Idx (VTSMX)
Intl Equity 25% Vanguard Total Intl Stock Index (VGTSX)
Intl Bonds 25% American Century International Bond (BEGBX)

Canadian Portfolio Rebalancing Spreadsheets

There are many potato options available to Canadian investors. I have built rebalancing spreadsheets for global portfolios using index funds and exchange traded funds (ETFs). Go ahead and edit these tools if your potato pick isn’t on this menu.

Canadian Global Couch Potato (ETFs)

If you’ve got a big stash of cash to invest then consider investing in ETFs to save on investing fees.

Canadian Global Couch Potato ETF Rebalance
Download: Global Couch Potato Rebalancing Spreadsheet (ETFs) (XLS)

Canadian Equity 20% iShares S&P/TSX Capped Composite (XIC)
U.S. and Intl Equity 40% iShares MSCI World (XWD)
Canadian Bonds 40% iShares DEX Universe Bond (XBB)

Canadian Global Couch Potato (index funds)

This portfolio is built with TD e-Series Funds, the lowest cost index mutual funds on the Canuck market. I shared my experience with this potato portfolio in the Globe and Mail’s Me and My Money column.

Canadian Global Couch Potato TD eSeries Funds Rebalance
Download: Global Couch Potato Rebalancing Spreadsheet (index funds) (XLS)

Canadian Equity 20% TD Canadian Index – e (TDB900)
U.S. Equity 20% TD US Index – e (TDB902)
International Equity 20% TD International Index – e (TDB911)
Canadian Bonds 40% TD Canadian Bond Index – e (TDB909)

How to use the Rebalancing Spreadsheet

Every Couch Potato Rebalancing Spreadsheet automatically calculates the money you need to invest in each fund to rebalance it back to the perfect asset allocation — you just need to enter a few numbers.

  1. Download your Couch Potato Portfolio Rebalancing Spreadsheet.
  2. In the Amount to Invest area, enter the total moolah available for rebalancing your portfolio.
  3. Under the Current Value column, enter the current market value for each of your funds.

Smile. Rebalancing your portfolio just got a whole lot easier.

Love,
Kerry