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There's a good reason why Burns' couch potato portfolio is 50/50. Everybody knows how to look at the total portfolio value and divide by two. You can do it in your head. But figuring 60% and 40% is a lot harder conceptually if you don't already do it all the time.

[In response to my idea of a basket of 5 ETFs.]

Yeah, that's what I meant about a tweak here and a tweak there and pretty soon you are far away from "simple". Not that I disagree with you about it being a better approach, just that it's too complex for a newbie at her stage in life.

So, first, let me start by saying that we are fundamentally in agreement. I wasn't really recommending the 5 ETF approach: my suggestion was the Vanguard funds. And I made that suggestion specifically for the reason you mention. While maintaining your own portfolio of periodically rebalanced ETFs isn't that hard, if you want something self-directed that is better than what you will get from a Vanguard all-in-one fund it will require enough "tweaks" that it does stop being simple. (That was arguably my point about the 5 ETFs.)

But my reaction to Couch Potato is somewhat along the same lines as what you pointed out about the Target 2010 fund: just because you are 50% bonds doesn't mean you are safe. Couch potato lost money in 2015 ( ). Burns even points out that the Vanguard Balanced fund did better than Couch Potato.

I would surmise the reasons Vanguard funds outperformed was the same reasons I suggested more than two funds: because they diversified outside the US, which gives you some currency protection as well.

So, if I were to make a chart it would look something like this:

Vanguard All-in-One Funds, Expected Results: Good*, Simplicity: Great
Self-directed ETF investing, Expected Results: Great, Simplicity: Moderate
Couch Potato: Expected Results: Moderate, Simplicity: Good

And from the chart, if you value simplicity the most then Vanguard is easier than Couch Potato and will likely have better returns over the long term than Couch Potato because it is better balanced. If you are looking to optimize returns as your biggest priority, then both All-in-One is better and self-directed is better and it just depends one whether you are willing to spend the time on a self-managed portfolio.

Again, I think we are in 95% agreement, I just don't think a self-directed approach is the way to go unless you are willing to invest the time to do it right. Otherwise, as you say, people can end up surprised at how volatile a 50% bond portfolio can be. There are better ways of reducing risk.


*Why do I say Vanguard is moderate rather than great? You have less ability to create a mix that is tailored to you and there are several long-term tax disadvantages. It's also worth disclaiming that I'm obviously assuming an apples to apples comparison: a 50% bond Balanced fund from Vanguard. Moderate Growth would obviously have better long-term growth potential.

I do think Couch Potato is intellectually interesting. It is better than what many people have, and yet very simple. It's perhaps most useful as a learning tool about how to manage and balance a portfolio. But when you look at the "next best alternative" it doesn't seem to really hold up.
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