Welcome to Canadian Couch Potato, a brand new blog intended to help investors looking for a low-cost, proven strategy that anyone can implement.
The Couch Potato strategy (also called index investing, or passive investing) involves buying and holding low-cost index funds designed to deliver the same returns as the overall stock and bond markets. After all, no one needs to beat the market to be a successful investor. From 1980 through 2009, Canadian stocks and bonds both averaged 10% annually, including dividends and interest. A 40-year-old investor who started saving $250 a month 25 years ago would be ready to retire with a $300,000 nest egg today if she had simply earned what the market offered.
Unfortunately, most investors earn nowhere near market returns. They chase hot funds, or make bets on individual stocks or sectors of the economy. Or they invest in high-cost mutual funds that pay 1.5% to the fund company and another 1% to the advisor before handing over what’s left. And how do these investors fare? According to research from Dalbar, during the 20 years ending in 2008, the average mutual fund investor in the US earned well under 2% annually! There are no comparable data for Canada, but the situation here is probably worse, because Canadians pay some of the highest mutual fund fees in the world.
Indeed, the financial industry is part of the problem. Many advisors are downright contemptuous about the Couch Potato strategy, arguing that it is “unsophisticated” and guaranteed to produce “mediocre” returns. They are apparently unaware that the strategy is endorsed by Nobel laureates, that it is employed by the most savvy institutional investors in the world, and that its long-term performance trounces some 90% the funds they are peddling. It’s hard to blame these advisors: as Upton Sinclair wrote, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
More and more Canadians are waking up to the fact that index investing is the best way to earn fair market returns over the long run. I’ve created Canadian Couch Potato to help you take control of your own investments using this proven method. The site includes comprehensive lists of all index mutual funds and ETFs available in Canada, as well as several model portfolios to get you started.
Above all, I hope the blog will become a forum for discussing the theory and practice of Couch Potato investing in Canada.