Couch potato investing started in 1987 when Scott wanted to create the idea of an "all weather portfolio" – a portfolio that would be less vulnerable to declines. The All Weather Portfolio morphed into the Couch Potato Portfolios.

As soon as a column on "the Couch Potato Portfolio" appeared, readers called and wrote. "OK", they seemed to be saying, "I’ve done my part. I hit the Mute button. Now will you tell me EXACTLY how to do this?"

In case you missed it, if you had divided your money in half and invested one portion in the Standard and Poors’ 500 Index and the other portion in the Shearson/Lehman Intermediate Bond Index, you would have done very well.

As of Mar 2008:

Last 3 Months (period) Return Last 1 Year (annual) Return Last 3 Years (annual) Return Last 5 Years (annual) Return Y-T-D (period) Return Since 1/1/1987 (annual) Return Since 1/1/1987 Standard Deviation
S&P 500 TR (9.45) (5.08) 5.85 11.32 (9.45) 10.83 16.37
LB U.S. IT Gvt TR 4.54 12.01 6.41 4.34 4.54 6.73 3.44
Original Couch Potato (2.45) 3.39 6.29 8.03 (2.45) 9.10 8.28

The Couch Potato investment strategy is based on three basic concepts;

  • Control the cost – settled on Vanguard as the lowest cost index fund choice.
  • Use index funds versus managed funds – index funds will usually outperform actively managed funds.
  • Use simple diversification techniques – use index funds that provide access to US, international and emerging markets.

"Home Cooking"

Scott published his Couch Potato Portfolios years ago and they have stood the test of time – especially against the many investment options supported by Wall Street. However, since we started AssetBuilder, we have seen many variants of the Couch Potato investment philosophy that have been "good cooking". Therefore, if you choose the do-it-yourself route, don’t be afraid to experiment. The only caveat is the original three basic concepts.

The Couch Potato Portfolios

The directions for all of the following Couch Potato Portfolios is the same. Select the Couch Potato Portfolio of choice. Then add the funds in equal parts to the portfolio. The result of this simple recipe is the Couch Potato investment strategy of choice.

Couch Potato

  • 1/2 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/2 – Vanguard Total Stock Mkt Idx (VTSMX)

Margarita

  • 1/3 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/3 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/3 – Vanguard Total Intl Stock Index (VGTSX)

Four Square

  • 1/4 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/4 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/4 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/4 – American Century International Bond (BEGBX)

Five Fold

  • 1/5 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/5 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/5 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/5 – American Century International Bond (BEGBX)
  • 1/5 – Vanguard REIT Index (VGSIX)

Six Ways from Sunday

  • 1/6 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/6 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/6 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/6 – American Century International Bond (BEGBX)
  • 1/6 – Vanguard REIT Index (VGSIX)
  • 1/6 – Vanguard Energy (VGENX)

Seven Value

  • 1/7 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/7 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/7 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/7 – American Century International Bond (BEGBX)
  • 1/7 – Vanguard REIT Index (VGSIX)
  • 1/7 – Vanguard Energy (VGENX)
  • 1/7 – Vanguard Value Index (VIVAX)

Seven Value 2

  • 1/8 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/8 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/8 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/8 – American Century International Bond (BEGBX)
  • 1/8 – Vanguard REIT Index (VGSIX)
  • 1/8 – Vanguard Energy (VGENX)
  • 1/8 – Vanguard Value Index (VIVAX)
  • 1/8 – Vanguard Small Cap Value Index (VISVX)

Nine Emerging

  • 1/9 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/9 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/9 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/9 – American Century International Bond (BEGBX)
  • 1/9 – Vanguard REIT Index (VGSIX)
  • 1/9 – Vanguard Energy (VGENX)
  • 1/9 – Vanguard Value Index (VIVAX)
  • 1/9 – Vanguard Small Cap Value Index (VISVX)
  • 1/9 – Vanguard Emerging Mkts Stock (VEIEX)

10 Speed

  • 1/10 – Vanguard Inflation-Protected Securities (VIPSX)
  • 1/10 – Vanguard Total Stock Mkt Idx (VTSMX)
  • 1/10 – Vanguard Total Intl Stock Index (VGTSX)
  • 1/10 – American Century International Bond (BEGBX)
  • 1/10 – Vanguard REIT Index (VGSIX)
  • 1/10 – Vanguard Energy (VGENX)
  • 1/10 – Vanguard Value Index (VIVAX)
  • 1/10 – Vanguard Small Cap Value Index (VISVX)
  • 1/10 – Vanguard Emerging Mkts Stock (VEIEX)
  • 1/10 – Vanguard International Value (VTRIX)

 

As of Mar 2008: Last 3 Months (period) Return Last 1 Year (annual) Return Last 3 Years (annual) Return Last 5 Years (annual) Return Y-T-D (period) Return Since 7/1/2000 (annual) Return Since 7/1/2000 Standard Deviation
Vanguard Inflation-Protected Secs 5.31 14.78 6.71 6.65 5.31 8.50 6.06
Vanguard Total Stock Mkt Idx (9.50) (5.79) 6.19 12.27 (9.50) 1.18 14.38
Vanguard Total Intl Stock Index (8.90) 1.34 15.52 23.18 (8.90) 5.91 15.82
American Century International Bd Inv 9.30 18.91 7.12 9.18 9.30 9.29 9.47
Vanguard REIT Index 2.12 (17.48) 11.64 17.76 2.12 15.09 17.72
Vanguard Energy (5.75) 25.31 24.97 32.25 (5.75) 21.46 23.77
Vanguard Value Index (9.02) (9.75) 6.15 13.98 (9.02) 4.44 14.56
Vanguard Small Cap Value Index (6.52) (14.84) 4.37 15.14 (6.52) 10.09 18.36
Vanguard Emerging Mkts Stock Idx (10.48) 21.69 27.95 34.96 (10.48) 15.37 25.05
Vanguard International Value (8.29) 0.07 15.45 23.86 (8.29) 7.99 16.24
Couch Potato (1.68) 5.08 6.90 9.65 (1.68) 5.27 6.68
Margarita (4.07) 4.03 9.97 14.16 (4.07) 5.77 9.12
Four Square (0.57) 8.07 9.47 13.01 (0.57) 6.84 7.48
Five Fold (0.10) 2.46 10.08 14.07 (0.10) 8.65 8.07
Six Ways from Sunday (1.14) 5.99 12.62 17.14 (1.14) 10.84 9.31
Seven Value (2.17) 3.81 11.76 16.72 (2.17) 10.00 9.64
Seven Value 2 (2.64) 1.47 10.88 16.55 (2.64) 10.12 10.36
Nine Emerging (3.64) 3.76 12.80 18.58 (3.64) 10.82 11.53
10 Speed (4.10) 3.43 13.11 19.12 (4.10) 10.59 11.85