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CHAPTER ONE
The Couch Potato Portfolio Is Microwavable
SCOTT BURNS IS A SYNDICATED FINANCIAL COLUMNIST WITH THE Dallas Morning News. His lighthearted, impish sense of humor makes him a big favorite among Texans, not to mention a growing audience throughout the country.
Before Scott introduced his Couch Potato Portfolio in 1991, he back checked the data on his funds from 1973 through 1991. How did it perform? Absolutely super, with an average annual return over 10% for that eighteen-year period. Incredible because, as you recall, those numbers carry through the 1982 bear market and the crash of ’87. Hot stuff, I’d say. Moreover, as Scott puts it, the Couch Potato Portfolio achieved these results with:
• No complicated accounts.
• No diligent reading of the financial press.
• No phone calls from brokers with “opportunities.”
• No meetings with investment advisers demonstrating their constant supervision of accounts.
• Very simple tax returns.
The Couch Potato Portfolio is so simple it’s an embarrassment to Wall Street’s army of brokers, analysts, and money managers who labor so long and so hard to build their supersophisticated portfolios of handpicked stocks that generate commissions for them.
Here’s the keep-it-simple trick to building your own Couch Potato Portfolio: You need only two funds in a 50-50 asset allocation. That mix will give you all the diversification you’ll ever need for your natural life, through bear markets and bull markets. This is it:
The Vanguard 500 Index
The Vanguard Total Bond Market Index ).
Both the stock and the bond funds require a minimum investment of $3,000. So you need at least $6,000 to start your own Couch Potato Portfolio.
That’s all? Yes, that’s it.
For the aggressive couch-bound investor who invariably believes you can always add some bells and whistles and improve on virtually anything, Scott also offers the “Sophisticated Couch Potato Portfolio.”
How “sophisticated”? This much: Instead of a 50-50 split between stocks and bonds, the allocation is 75-25. But not to complicate things any more than necessary, you get to use the same two funds. Put 75 percent of your money in the Vanguard 500 Index and 25 percent of the portfolio in the Vanguard Total Bond Index Fund.
You think it’s too simple? Too good to be true? That there’s gotta be a gimmick? Sorry folks, no tricks. It is that simple. Because it works. Here’s how. In his 2001 annual update Scott reports:
1. Short-term performance. “The Traditional 50/50 Couch Potato lost only 1.80 percent compared to the 11.32 percent loss suffered by the average domestic equity fund.” In other words, the Couch Potato Portfolio beat the stock market by about 10 percent during the very bearish 2001.
2. Ten-year pretrial run. Remember, Scott back-checked performance for the ten-year period prior to the fund’s launch in 1991. Again, very credible results, with a 14.18 percent average annual return.
3. Recent performance. Scott also points out that “over the last fifteen years the 50-50 Couch Potato provided an annualized compound return of 10.96%. The 75-25 Sophisticated Couch Potato provided a compound return of 12.30%.” Meanwhile, the average balanced fund returned only 9.45 percent, and domestic equity funds returned 11.85 percent. Once again, folks, dazzling proof positive that pure unadulterated laziness wins in both the short run and the long run.
Okay, I know I said no tinkering. So I told a little white lie. Scott says you gotta get up off the couch and away from the tube for maybe ten minutes a year. Here’s how the impish genius puts it: “Try this: Once a year—like when you add new money— you take the total value of your investment and divide by two. That tells you how much you need in stocks. And in bonds. So you move some money, as necessary, from stocks to bonds. Or vice versa.”
Actually, you may even be able to work it out so you tinker with only one fund. Simply add new money to the fund that’s now underallocated—just enough to bring both back in line with the recommended 50-50 or 75-25 model asset allocations. Keep it real simple!
The Couch Potato Portfolio is definitely not going to win any applause from Wall Street’s commissioned brokers, nor from America’s day traders, nor even from fee-based professional financial advisers.
Yes, they’ll put down this oversimplified no-stress portfolio strategy. But secretly, they all know it’s virtually impossible for them to beat the Couch Potato Portfolio. Since none of them can make any money recommending no-load index funds, however, they’ll stay noticeably silent, because they know in their hearts that indexing is the best and safest solution for most Americans.
When I informed Scott that his Couch Potato Portfolios were getting the most votes in the laziest portfolio contest, Scott offered this brief acceptance speech: “Let’s hope sloth becomes a universal virtue for investors.” CHAPTER ONE
The Couch Potato Portfolio Is Microwavable
SCOTT BURNS IS A SYNDICATED FINANCIAL COLUMNIST WITH THE Dallas Morning News. His lighthearted, impish sense of humor makes him a big favorite among Texans, not to mention a growing audience throughout the country.
Before Scott introduced his Couch Potato Portfolio in 1991, he back checked the data on his funds from 1973 through 1991. How did it perform? Absolutely super, with an average annual return over 10% for that eighteen-year period. Incredible because, as you recall, those numbers carry through the 1982 bear market and the crash of ’87. Hot stuff, I’d say. Moreover, as Scott puts it, the Couch Potato Portfolio achieved these results with:
• No complicated accounts.
• No diligent reading of the financial press.
• No phone calls from brokers with “opportunities.”
• No meetings with investment advisers demonstrating their constant supervision of accounts.
• Very simple tax returns.
The Couch Potato Portfolio is so simple it’s an embarrassment to Wall Street’s army of brokers, analysts, and money managers who labor so long and so hard to build their supersophisticated portfolios of handpicked stocks that generate commissions for them.
Here’s the keep-it-simple trick to building your own Couch Potato Portfolio: You need only two funds in a 50-50 asset allocation. That mix will give you all the diversification you’ll ever need for your natural life, through bear markets and bull markets. This is it:
The Vanguard 500 Index
The Vanguard Total Bond Market Index ).
Both the stock and the bond funds require a minimum investment of $3,000. So you need at least $6,000 to start your own Couch Potato Portfolio.
That’s all? Yes, that’s it.
For the aggressive couch-bound investor who invariably believes you can always add some bells and whistles and improve on virtually anything, Scott also offers the “Sophisticated Couch Potato Portfolio.”
How “sophisticated”? This much: Instead of a 50-50 split between stocks and bonds, the allocation is 75-25. But not to complicate things any more than necessary, you get to use the same two funds. Put 75 percent of your money in the Vanguard 500 Index and 25 percent of the portfolio in the Vanguard Total Bond Index Fund.
You think it’s too simple? Too good to be true? That there’s gotta be a gimmick? Sorry folks, no tricks. It is that simple. Because it works. Here’s how. In his 2001 annual update Scott reports:
1. Short-term performance. “The Traditional 50/50 Couch Potato lost only 1.80 percent compared to the 11.32 percent loss suffered by the average domestic equity fund.” In other words, the Couch Potato Portfolio beat the stock market by about 10 percent during the very bearish 2001.
2. Ten-year pretrial run. Remember, Scott back-checked performance for the ten-year period prior to the fund’s launch in 1991. Again, very credible results, with a 14.18 percent average annual return.
3. Recent performance. Scott also points out that “over the last fifteen years the 50-50 Couch Potato provided an annualized compound return of 10.96%. The 75-25 Sophisticated Couch Potato provided a compound return of 12.30%.” Meanwhile, the average balanced fund returned only 9.45 percent, and domestic equity funds returned 11.85 percent. Once again, folks, dazzling proof positive that pure unadulterated laziness wins in both the short run and the long run.
Okay, I know I said no tinkering. So I told a little white lie. Scott says you gotta get up off the couch and away from the tube for maybe ten minutes a year. Here’s how the impish genius puts it: “Try this: Once a year—like when you add new money— you take the total value of your investment and divide by two. That tells you how much you need in stocks. And in bonds. So you move some money, as necessary, from stocks to bonds. Or vice versa.”
Actually, you may even be able to work it out so you tinker with only one fund. Simply add new money to the fund that’s now underallocated—just enough to bring both back in line with the recommended 50-50 or 75-25 model asset allocations. Keep it real simple!
The Couch Potato Portfolio is definitely not going to win any applause from Wall Street’s commissioned brokers, nor from America’s day traders, nor even from fee-based professional financial advisers.
Yes, they’ll put down this oversimplified no-stress portfolio strategy. But secretly, they all know it’s virtually impossible for them to beat the Couch Potato Portfolio. Since none of them can make any money recommending no-load index funds, however, they’ll stay noticeably silent, because they know in their hearts that indexing is the best and safest solution for most Americans.
When I informed Scott that his Couch Potato Portfolios were getting the most votes in the laziest portfolio contest, Scott offered this brief acceptance speech: “Let’s hope sloth becomes a universal virtue for investors.”
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