Advertisement
Couch Potato investors typically have a target asset mix that needs rebalancing at least once a year.
I have had Couch Potato accounts set up for about six years. Whenever I add new money, I’ve been buying more of the ETFs that have done poorly, leaving the best performers alone. Does this strategy make sense?
—Brad Riddell, Straffordville, Ont.
“You’re doing the right thing, even if it doesn’t feel like it,” says Dan Bortolotti, author of the MoneySense Guide to the Perfect Portfolio. Couch Potato investors typically have a target asset mix: for example, they may plan to keep equal amounts in stocks and bonds. By adding new money to the worst performers each year, you’re not only keeping your risk level consistent, you’re also “buying low.”
The only problem is this technique stops working when your portfolio becomes large relative to the size of your contributions. For example, say your portfolio is $200,000 with a target of half stocks, half bonds. After a good year for the markets, the portfolio might end up with 55% stocks ($110,000) and 45% bonds ($90,000). Now you would have to add $20,000 in new money to the bond side to get back to even, and many people won’t have that much cash available. In that case, you should sell $10,000 worth of stocks and put the proceeds into bonds to get back to your target allocation.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Bitcoin is alive and well, three ways to buy crypto in Canada, and what to know about crypto capital...
Many Canadians believe their financial situation will worsen this year, according to an MNP report on consumer debt.
Here’s a primer for Canadians planning for the tax payable on a non-registered account at death, including capital gains...
To have liquidity and reduce taxes, Canadians can move money between registered accounts. But what are the tax, contribution...
The apparel retailer’s profit jumped 72% in Q3, as its e-commerce and U.S. net revenue spiked.
Communication is key to ensuring an inheritance doesn’t cause friction between siblings. Follow these tips to avoid conflicts in...
Sponsored By
Simplii Financial
We have everything you need to know about tax credits, changes and deadlines, and more. Get the info you...
The increase to the capital gains inclusion rate is going ahead—at least for now, says Canada’s Finance Department.
