TFSA: Portfolio - Canadian Couch Potato

December 02, 2018 - 4 min read 🍵🍵🍵

Tags: money

Canadian Couch Potato Method

Investing when you are young is probably the best thing you can do. Learning at a young age will give you a huge advantage because time is the only commodity you cannot buy. Time is the key factor in investing and will play in your favour the earlier you start.

When I read about this, I thought to myself about the expenses I had to pay, the student loans that were hovering and how I couldn’t simply bring any money to the table to invest. But understanding that if I was able to stack away 10 dollars a week, which was probably the equivalent of two Starbucks coffees, things might have been different.

In my investment strategy, I’ve decided to follow the Canadian Couch Potato path which is influenced by John C. Bogle’s low cost index funds from Common Sense Investing.

An Index fund is:

“Simply a basket (portfolio) that holds many, many eggs(stocks) designed to mimic the overall performance of any financial market or market sector”

That being said:

“Index funds eliminate the risk of individual stocks, market sectors and manager selection. Only stock market risk remains”

I highly recommend the book as it teaches you the fundamentals of getting your fair share of the stock market return.

I followed the Millennial Revolution’s investment workshop to get started with Questrade which can be found here.

In a TFSA account, it is ideal to be investing in the Canadian and International markets because there are no withholding taxes on your dividends. The US (IRS) levies a withholding tax of 15% on dividends paid to Canadian investors. Therefore, it is technically being taxed and we will not be able to claim these taxes.

However, the good news is that IRS does not levy withholding taxes held in an RRSP. There are other situations where having US stocks in a TFSA would be ideal but you would need to do your own research before doing so.

In Questrade, I’ve purchased 4 funds as per Canadian Couch Potato’s model - a set it and forget it model.

1. VCN - Canada All Cap Index ETFs - Canadian Market (Equity)

2. VAB - Canadian Aggregate Bond Index ETF (Bonds)

3. XEF - iShares CORE MSCI Index ETF - International Market (Equity)

4. VUN - U.S Total Market Index ETF (Equity)

The updated Canadian Couch Potato (2017) replaced VAB with ZAG (BMO’s bond ETFs because of its aggressive MER of 0.09%). VAB has 80% government bonds, 20% stocks where as ZAG is 70% and 30% respectively.

My risk tolerance is fairly aggressive at 85% equity, and 15% bonds because I’m young and could care less about volatility. I know that long term growth is the key to success.

When completed, you should be expecting an average annual return of 7-9% over a long period of time. If you were to divide your total yield over a 10-20 year period, the math will calculate out to be an average of 7%. This is very important to remember because when the markets are down, you need to “re-balance” your portfolio, which is done once a year.

The key to building wealth is time. Index funds take the excitement out of investing, but it should be a good thing because it’s a steady way of getting the most out of the stock market.

Life is short; humans are creatures who crave excitement, so if you want to pick your own stocks, feel free to take some risks but John C. Bogle says, stock picking is like finding a needle in a haystack, its better to just buy the haystack.


A blog by Kien