![]() To many investors, the idea that the Couch Potato strategy can beat most professional money managers seems ridiculous-as though someone were selling a golf strategy that could beat most players on the PGA Tour. To use a favourite phrase of the late John Bogle, the father of index investing, instead of looking for the needle in the haystack, index funds just buy the haystack. That’s different from the goal of “actively managed” mutual funds, which try (usually unsuccessfully) to choose individual securities that will outperform the market. ![]() The idea is to deliver a return extremely close to that of the overall market. Indexes can also track the fixed-income market, such as the widely used FTSE Canada Universe Bond Index, which covers both government and corporate bonds in Canada.Īn index fund simply holds all (or almost all) of the stocks or bonds in a particular index. The MSCI EAFE Index is a popular benchmark for stocks in Europe, Australia, Japan and other developed countries overseas. market by tracking 500 of the largest companies. Similarly, the S&P 500 is a well-known index that measures the U.S. For instance, the S&P/TSX Composite Index includes about 240 companies traded on the Toronto Stock Exchange, and it’s considered a barometer of the entire Canadian equity market. Anyone can now build and maintain an extremely well diversified portfolio using index mutual funds or exchange-traded funds (ETFs).įirst it’s important to understand what an index is: it’s a group of stocks or bonds used to measure the performance of a particular market. The strategy-also called index investing, or passive investing-has been around for decades, though it has become far more popular in recent years, as new products and online brokerages have made it easier and cheaper to implement. They understand that investors give themselves a greater chance of success by simply accepting the returns of the broad stock and bond markets. While most investing strategies are based on picking individual stocks, making economic forecasts, and timing the markets, Couch Potato investors recognize most of these activities are counterproductive. ![]() It can reduce your fees by as much as 90%, while at the same time beating the majority of mutual funds and professionally managed accounts. The Couch Potato strategy is a way of building a diversified, low-maintenance portfolio designed to deliver the returns of the overall stock and bond markets at minimal cost.
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