Is Couch Potato Investing Right for You?

When building an investment portfolio for retirement or other financial goals, strategy is key. Couch potato investing involves taking a largely hands-off approach to managing your portfolio. If you’re curious about how this style of investing works, here’s what you need to know. While couch potato investing is low-maintenance, if you prefer more active management, but don’t want to monitor your investments yourself, consider working with a financial advisor.

What Is Couch Potato Investing?

A couch potato investor follows a passive strategy, building a diversified portfolio of low-cost index funds or exchange-traded funds (ETFs) and leaving it on autopilot.

An index fund can be a mutual fund or ETF. They consist of groupings of stocks, bonds and other investments. They typically track a benchmark or index with the goal of matching its performance, instead of beating the market.

With this type of passive investing, you do not make frequent changes to your portfolio based on movements in the market. Typically, having a couch potato portfolio means checking in once a year and making adjustments as needed.

How Couch Potato Investing Works

Couch potato investing keeps things simple. It ultimately comes down to how you allocate your portfolio.

There are different asset allocation strategies you can use, based on your investment goals and risk tolerance. For example, a sample couch potato portfolio might hold 40% domestic stocks, 40% international stocks and 20% bonds.

Newer investors may take a different strategy, preferring instead the simplicity of an 80/20 split that sticks to stocks and bonds They may also minimize the number of index funds in their portfolios, maybe limiting their investments to just three funds. One may represent the U.S. stock market, while the other two focus on the international stock market and bond market. Regardless of the asset allocation you choose, the goal is to build a portfolio that requires minimal hands-on management.

The equity side of your portfolio is what helps drive growth, while the bond side helps balance out stock risk and market volatility. It is important to assess your strategy at least once a year so you can rebalance your portfolio to adjust or maintain your target allocations.

Even though you are limiting yourself to a few index funds, you can maintain diversification by choosing the right funds. For example, a total stock market index fund is a popular option because it offers investors exposure to every stock in the S&P 500. It is a simple way to grow a portfolio over time while managing risk.

Passive Investing vs. Active Investing Returns

If you're getting started with couch potato investing, there are a variety of investments to explore.

To determine a couch potato investment portfolio’s performance over time, compare the historical performance of passive funds vs. active funds. It will give you a good idea of how to develop the best investment strategy based on key factors like your time horizon and risk tolerance.

According to Morningstar, only 24% of active funds managed to outperform their average passive fund rival during the 10-year period ending in December 2018.

According to Morningstar’s US Active/Passive Barometer Report: Mid-Year 2025, 67% of passive funds outperformed active funds.

That means a passive management strategy, like the couch potato strategy, could yield higher returns than an active strategy that requires more of your time.

Who Is Couch Potato Investing Right For?

Being a couch potato investor might appeal more to some people than others. Generally, this strategy could be a good fit if you:

Are investing for the long-term.
Prefer a passive investment strategy to an active one.
Are looking for a low-cost way to invest.
Want to make rebalancing and diversification easier.

A couch potato strategy tends to be more of a long game because you’re banking on the stocks in your index funds increasing in price over time. This kind of strategy wouldn’t appeal to someone who’s interested in being a more active trader and realizing near-term gains.

Another advantage of couch potato investing is how cost-effective it is compared to active investing. There are several ways that active investing can help you save money on your investments:

Holding onto investments for the long-term in a taxable brokerage account means that when you eventually sell, you’re subject to the more favorable long-term capital gains tax rate.
A number of index mutual funds and ETFs carry low expense ratios, which means you pay less in fees.
You are also likely to pay fewer commissions than you would if you were trading stocks more frequently.

How to Build a Couch Potato Portfolio

Becoming a couch potato investor can be easier than you think. If this strategy is right for you, there are two steps you need to take to get started.

First, decide how you want to split your portfolio between equities and bonds. You might choose a 50/50 or 60/40 split, or even somewhere in between. Ultimately, this depends on factors, such as your age, time horizon, risk tolerance and financial goals.

Once you decide how to invest, you need to decide what to invest in. Consider how many funds you want for your portfolio and compare top index funds to determine which ones are the best to buy. You can simplify this process by choosing just a handful of index funds that track the entire stock market or the total bond market.

Once your couch potato portfolio is set up with your brokerage, the hard part is done. Going forward, you just need to check on your investments annually to see how your assets are weighted and how your funds are performing. You can always rebalance your portfolio if necessary to pull your asset allocation back in line with your chosen targets.

Evaluating Returns of the Couch Potato Portfolio

A simple couch potato portfolio involves putting 50% of your money in the S&P 500 index and 50% in a bond index, then rebalancing it once a year. This mix has shown steady performance compared to the stock market over time.

Financial columnist Scott Burns highlighted its early success, noting that between 1973 and 1990, this approach returned 10.29% per year. That was only 0.27% lower than the stock market, but with about half the volatility. It also outperformed 50% to 70% of professional money managers during that period.

The portfolio also held up well in difficult markets. During the bear market from 2000 to 2002, when the S&P 500 dropped 43.1%, the couch potato strategy lost just 6.3%. This shows how splitting between stocks and bonds can help cushion losses.

In 2018, when the market saw its first annual decline in nearly a decade, the S&P 500 fell 4.52%. A couch potato portfolio made up of the Vanguard Total Market Index ETF and the iShares TIPS Bond ETF lost 3.31%, again showing smaller losses.

However, the trade-off is slower growth. Between 2010 and 2019, the S&P 500 returned 12.97% a year, while the couch potato portfolio returned 8.48%. By October 2019, the S&P was up 19.92% for the year compared to 11.06% for the couch potato approach.

As of 2025, the S&P 500 continues to show strong growth, but the couch potato portfolio remains a safer, steadier option for those who want to limit volatility, even if it means giving up some potential gains.

Risks and Limitations of Couch Potato Investing

While couch potato investing is simple and cost-efficient, it does have some drawbacks. The biggest limitation is that your returns are capped by the market index you track. You will never beat the market because your portfolio is designed only to match it. For some investors, especially those who enjoy active management or stock-picking, this lack of upside potential can feel limiting.

Another risk is complacency. Even though the strategy requires little oversight, it does not mean you should ignore your portfolio entirely. You may need to adjust your asset allocation due to a number of factors, including major life changes, shifting financial goals or a change in risk tolerance. Sticking too rigidly to a set-and-forget approach could leave your portfolio mismatched with your needs.

Market downturns are another factor. A couch potato portfolio spreads risk with bonds, but it will still lose value in recessions or bear markets. Investors who assume they are fully protected may be surprised when balances drop. While couch potato investing can reduce volatility compared to stocks alone, it does not entirely eliminate losses.

Taxes also play a role. Index funds and ETFs are generally tax-efficient, but taxable accounts can still generate capital gains and dividends. Without tax planning, the simplicity of the couch potato approach may lead to higher expenses than you were expecting come tax time.

Finally, couch potato investing requires discipline. Because it is a passive strategy, you must resist the urge to respond to market swings. Investors who abandon their original approach during volatile times may miss the long-term benefits it offers.

Bottom Line

Couch potato investing keeps things simple, but you should still compare costs and performance to your goals.

Couch potato investing allows you to take a set-it-and-forget-it approach to portfolio building. If you are looking for a smaller time commitment for your investments, this strategy could work for you. However, like any other investment strategy, be sure to take the time to weigh performance and cost against your goals before moving forward.

Investment Planning Tips

How confident are you that your portfolio is positioned for today’s economy? A financial advisor can help asses your portfolio and create a plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When comparing index funds, pay attention to how often assets inside the fund turn over. An index ETF, for example, may have less turnover than a traditional index fund, which is a good thing from a tax perspective. When there’s less turnover, there are fewer taxable events. The more tax-efficient your couch potato portfolio is, the more of your returns you get to keep.