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The Couch Potato portfolio is cheap, but is it effective? Over the past two decades this simple strategy has outperformed the average balanced mutual fund
Methodology: None of the products we use to build our Couch Potato portfolios has been around for 20 years. While we’ve used actual fund returns beginning in the first full month after each fund’s inception, for earlier periods we used the returns of each portfolio’s benchmark index and subtracted the current management expense ratio of the fund. This is an imperfect but reasonable proxy for how index funds would have performed. We also compared our portfolios to their peers using data from Morningstar. Fees and subtle variations in the underlying indexes account for the differences in the returns of the three portfolios. The performance of the Tangerine fund does not need to be adjusted for fees since there are no transaction costs to own the fund and it doesn’t need to be rebalanced. The returns of the e-Series and ETF portfolios assume perfect behaviour: that is, the investor incurred no transactions costs or account fees and rebalanced at the beginning of every year. Any additional costs would have reduced returns.
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