The Ignorant Investor

Ignorance Can't Stand in the Way of My Opinion

Wednesday, August 02, 2006

 

The Origin of the Couch Potato Portfolio

Financial Columnist Scott Burns on the creation of his simple "Couch Potato Portfolio":

In the summer of 1987, just before the crash, Jerry wrote a piece on “The All Weather Portfolio.” He was worried about stock prices and wanted to develop a portfolio that was suitable for all markets. It also had to be simple, so anyone could do it. I thought it was a great idea and started looking for something really simple that would produce better results than most people were getting with CDs or the mutual fund of the moment, whether it was sold to them or came off the cover of Money magazine.

Eventually, I reduced Perritts five choices down to two. I eliminated real estate, for instance, because most Americans already have a big real estate commitment in their house. I eliminated gold because it was too fluky. I eliminated international stocks because Coca-Cola gets most of its profits abroad while Honda gets most of its profits in the United States. That got us down to domestic stocks and bonds, a two fund portfolio you could produce with two index funds.

Over the past couple of years Burns has moved away from the pure simplicity of the 50/50 split and added international funds, and, in one suggested portfolio, real estate. Yet I still like the concept of his original idea.

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