Couch Potato Investing Canada: The Ultimate Guide for 2024

Couch potato investing, also known as index investing, is a passive investment strategy. It is best suited for investors looking for low-risk, long-term gains with minimal management. 

If this strategy matches your investment style, keep on reading and learn more about couch potato investing in Canada. We will explain what the approach is all about and the reasons for its popularity as well as show you 4 ways you can build a successful couch potato portfolio. 

What Is the Couch Potato Investing Strategy?

Couch Potato investing originated in the United States in the early 90s. The strategy proposed that investors hold two funds with a 50/50 mix to achieve a balanced portfolio that would replicate the returns of the underlying market indices. Investors would then need to rebalance the portfolio every year to maintain the asset allocation at 50/50 (or whichever mix they are trying to achieve). 

The idea was that a diversified portfolio of index funds or ETFs can offer more consistent and potentially higher returns than active investing, while minimizing risk, as well as time and money spent in the process. 

After its success in the US, the strategy became popular north of the border, although it was slightly modified for Canadian investors. Namely, instead of focusing on US stocks and bonds like the American strategy, the plan reflected international stocks and Canadian bonds and stocks. 

Since 2010, couch potato investing has been championed by Dan Bortolotti in his blog Canadian Couch Potato. The blog is probably the best resource for anyone interested in this passive investing approach. In addition to a ton of educational materials, it also offers model portfolios with various asset allocations so that Canadians can implement the strategy more easily.

Why is couch potato investing popular?

The strategy proposes a passive approach towards investing—rather than putting your money in stocks only, you invest in holdings that mirror the benchmark index, such as index funds and ETFs. As such, the strategy comes with several benefits including:

  • Lower fees—You can pay MERs as low as 0.12% or 0.25% by investing in ETFs or one of the model portfolios on the Canadian Couch Potato site. By comparison, MERs for actively managed Canadian equity mutual funds range between 0.47% and 0.63%. 
  • A hand-off approach—There is no need for extensive research since you are not trying to beat the market, but rather mirror a broad market benchmark index. You just invest on a regular basis and rebalance the portfolio every year to maintain the same allocation of assets. To save even more time and effort, you can invest in an all-in-one ETF which is rebalanced automatically or choose a platform that allows automated deposits—most of the best investment apps do. 
  • Easy to implement—You can pick a pre-built portfolio based on your risk appetite, further simplifying the entire investment process. But even if you choose to build your own portfolio, the strategy is not that hard to implement and is suited to most DIY investors. 
  • Instant diversification—Since you are putting your money in ETFs and index funds, you get exposure to a wide range of companies from different industries with varying market caps. This way, if one of the securities in the fund takes a hit, you can compensate for losses with the other assets, thereby minimizing your risk exposure. 
  • Potentially higher returns than actively managed fundsIt is estimated that just 8% of Canadian Equity funds beat their benchmark. On the other hand, the potential returns for long-term investors are estimated at 6.16% to 6.68% a year.

How to Build a Couch Potato Portfolio 

When it comes to couch potato investing, you can either build your own portfolio (which costs less but requires a little effort on your part) or you can invest in a ready-made Couch Portfolio. The latter is a tad more expensive but offers a completely hands-off approach. 

Here is a brief overview of your options. 

1. Tangerine Investment Funds

Tangerine, Scotiabank’s online division, was one of the first to offer low-cost mutual funds in Canada. The bank has several options for couch potato investors, including Core Portfolios and Global ETF Portfolios. The latter have lower MER (1.06% and 0.76%, respectively), but come with administration fees of 0.65%—Tangerine Core Portfolios have no account fees or minimum balance requirements. 

Both portfolios provide exposure to domestic and international stock and are available in several risk levels, allowing investors to choose the one they are the most comfortable with. 

Despite the low costs, Tangerine is not the cheapest couch potato investing option out there. Also, you won’t be able to customize your portfolio, although that is a fair tradeoff when you consider that the portfolio is rebalanced automatically so there is little to no effort on your part. 

Read more about Tangerine in our detailed review

2. TD e-Series Funds

TD e-series funds are index mutual funds. However, unlike Tangerine, they are priced much lower (between 0.33% and 0.50%). There are no commission fees either, making these a more cost-effective option. 

Another difference is that TD e-Series funds are not ready-made. This means you have more flexibility and can mix and match dedicated stock and bond index funds to suit your risk tolerance. On the other hand, the approach requires a bit more legwork and you would need to rebalance the portfolio yourself.

The TD e-Series funds are now more readily available—before they were only offered to TD customers, but now you can invest through most online brokers. You can also find the same risk level options with TD’s ETFs, getting even lower MERs of 0.19% or 0.11%.  

3. Asset allocation ETF portfolios

Also known as one-fund ETFs, asset allocation ETFs are made up of bonds and stock ETFs in various allocations (20/80, 40/60, 60/40, 80/20). 

They also provide exposure to domestic and international markets (US, developed and emerging markets) and they are rebalanced automatically, so they are easy to manage. 

What’s more, one-fund ETFs have low MERs of 0.24% for Vanguards’ and 0.20% for BMO and iShares’. 

On the downside, they are less flexible since like Tangerine investment funds, you can’t change the allocation of the ETFs. They are a bit more expensive than investing in the underlying ETFs as well, although they are much simpler to manage. For investors who don’t want to manually build or rebalance their portfolio, the slightly higher cost is a fair compromise.  

4. ETF investing (build your own ETF portfolio)

If you are interested in different allocations than the ones offered by one-ticket asset-allocation ETFs, you can combine an all-stock ETF, like the Vanguard All-Equity ETF Portfolio (VEQT), with a bond ETF, such as the Vanguard Canadian Aggregate Bond Index ETF (VAB), and build your own portfolio. 

ETFs have even lower MERs (usually between 0.07 and 0.10%) and can be traded in real-time just like stocks, normally with no commission. Actually, there are several platforms that offer at least 100 ETFs for free, while some charge a small trading fee but in return fully automate the process

Another great thing about ETFs is flexibility—there are thousands of funds to choose from (unlike TD e-series and Tangerine funds which limit you to a few options only). 

That said, if you are a newbie to couch potato investing (or investing in general), the number of options on the market might overwhelm you. Also, building your own portfolio requires more work and time—if you’re not ready to put up the effort you may be better off with asset allocation ETFs. 

How to Get Started with Couch Potato Investing in Canada   

As stated above, the strategy is very simple. These are the steps to follow:

1. Open a brokerage account that supports ETFs/ index funds 

Most of the top-rated online brokerages and trading apps allow you to buy mutual index funds and ETFs, including CIBC, TD and Scotia iTRADE. What’s more, several online brokers offer the chance to buy ETFs for free, although most charge a fee when rebalancing your portfolio. 

2. Open an investment account

The type of account you open is important—registered accounts such as TFSAs or RRSPs can help you avoid capital gains tax. However, if you have used up all your contribution room, then you might have to go with a non-registered account. In this situation, it might be better to consider ETFs, and US ETFs in particular, since these tend to be more tax-efficient. 

3. Build your couch potato portfolio 

As mentioned above, there are several ways you can build your portfolio—you just need to find the one most suited to your risk tolerance and experience. For instance, if you are completely new to the investing game, Tangerine investment funds of an asset allocation ETF might be a better choice whereas more seasoned investors can try building their own portfolio by purchasing mutual funds of ETFs. 

4. Make regular contributions to your account

You need to contribute to your account on a regular basis so you can invest in your portfolio. Luckily, most investment platforms allow you to automate your portfolio so you will never forget to pay your contributions. 

They will also send you notifications when your portfolio drifts or when you have money in your account so you can rebalance it with ease.

What to Consider Before Getting Started with Couch Potato Investing?

Consider these factors before you start building your couch potato portfolio.

  • Asset allocation 

Regardless of how you build your portfolio, you need to consider the allocation of assets in your portfolio. 

Stocks tend to offer higher returns than bonds but are more volatile and therefore riskier. If your risk appetite allows it, try a portfolio that is geared more towards investing in stocks, such as 80% equity and 20% bonds to balance out the risk factor. 

On the other hand, if your risk tolerance is low, go in the opposite direction and choose a mix of 60% bonds and 40% stock index funds—the returns will be lower, but your investment will be safer. 

If you can’t decide, go with the classic 50/50 allocation. 

  • Diversification

Whatever asset allocation you end up choosing, make sure your investment is diversified. This means choosing index funds or ETFs that provide exposure to various markets and are spread across industries and market sectors. 

Diversify beyond the border as well so you can take advantage of all opportunities and get higher returns. Remember, the Canadian market has provided solid returns in the past, but makes up only 2 to 3% of global markets, unlike the US market which accounts for 45% of the total stock market value.

  • Rebalancing your portfolio

This is an important factor to consider when choosing between a model portfolio and building one yourself. 

Rebalancing your portfolio may sound like a simple task—you just need to sell whatever has gone up in value and buy assets that have gone down. However, not all investors have the discipline to weather market volatility and keep the asset mix close to the long-term target allocation. This is especially true in situations when bonds fall drastically while returns from stocks come in double digits, tempting inventors to mix up the asset allocation in return for fast gains. 

For these couch potato investors, a ready-made portfolio may be a more suitable option. 

  • Cost 

If you’re looking for the most cost-effective way to build a couch potato portfolio, ETFs are your best bet. Typically, ETFs have lower Management Expense Ratios (MERs) than index funds—for instance at TD, ETFs have an average MER of 0.11% compared to mutual index funds with an average MER of 0.33%. 

Remember though that the cheapest option is not always the best—the important thing is to go with a portfolio you are comfortable managing.


Who is couch potato investing best for?

Couch potato investing is a great way to earn passive income and could be an option to consider if  

  • You have never invested before: You will need some knowledge about financial matters, although you don’t need a lot of experience to invest in ETFs or mutual funds. 
  • You prefer a hands-off approach: This strategy requires almost no effort on your part, so it’s great if you don’t have a lot of time on your hands. 
  • You don’t want to work with a fund manager: By building your own portfolio, you are in charge of asset allocation. 
  • You don’t have a lot of money for an initial investment: One of the biggest appeals of couch potato investing is low fees. 
  • You want to invest but see it more as a chore: The couch potato investing approach can be completely hands-off.  
  • You are in it for the long run, i.e. earning modest by consistent returns over a longer period of time.

On the other hand, if you want to be actively involved in your investments or want above-market gains, consider other forms of investing.

What is Canadian Couch Potato investing?

Canadian Couch Potato is a blog run by Dan Bortolotti. It aims to help Canadians implement the couch potato investing strategy by offering tips, model portfolios and educational resources. For those interested in pursuing this investment strategy, Canadian Couch Potato is the best resource you can find.