What is Couch Potato Investing, and why it presents a viable investment strategy

The term 'Couch Potato' is perfectly defined by the Urban Dictionary as:

“A lazy person who does nothing but sit on the couch and watch television.”

It comes with fantastic synonyms like: slacker, lazy, bum and slug.

That doesn’t sound too much like a life goal, but it actually does present a viable strategy for investing. A couch potato investor would be a passive investor who deals with his investments once a year. The rest of the year, this investor may or may not contribute to their investments and they may or may not even care to see how their investments are performing. How could this possibly be a good strategy?

1. You are not being emotionally influenced by short-term market fluctuations. How can you be when you’re not even looking at your investments! If you hold a balanced index portfolio, you are so heavily diversified that any short to medium-term swings will likely be insignificant. Not tracking your performance daily or even monthly allows you to keep an eye on the bigger picture, which is long-term growth.

2. You are avoiding heaps of fees. While you may have free transactions if you are buying e-series or other index funds, ETFs tend to come with commissions. The more you trade, the more fees you accumulate. By trading only once a year (adding to investments and rebalancing) you are limiting fees while maintaining some level proactivity.

3. It’s an easy approach. Yep, being lazy is easy. A couch potato investor might deal with their investments for an hour or two a year and achieve better returns than their neighbour who spends nights trying to find the next hot stock. You could know next to nothing about the stock market and still carry out a couch potato investment strategy (and obtain solid results), making it an attractive option.

The key concept here is that a couch potato investor keeps things simple, there is incredible power to simplicity when it comes to investing.

To expand on index investing, taking the couch potato approach can be very beneficial, especially to youth investors. One of the key objectives is to begin investing at a young age and use time to your advantage (and the power of compounding interest). Most young people tend to know little about the stock market and investing, creating a barrier to entry as investing is viewed as being immensely complicated. In most North American education systems, business literacy is given little importance. It is also viewed as a personal topic and rare that people will openly discuss their finances. Most youth likely have little idea what their parents’ true financial situation is (and nor do their parents tend to want to talk about it). This results in young people making bad financial decisions as no one has taught them how to deal with money. Getting involved in index investing is perfect for young people as it is a passive approach that doesn’t require deep market knowledge to be effective. So, for once it may actually be a good idea to be a couch potato.