Does the Couch Potato portfolio work?
The Couch Potato portfolio, popularized by columnist Scott Burns, is about as simple as investing gets: half in the total US stock market, half in inflation-protected US bonds (TIPS). Rebalance once a year and otherwise leave it alone — the whole point is that you don't have to think about it.
What's in it: the allocation
- VTI50%
- TIP50%
Growth of $10,000
What an investor actually experiences: drawdowns
A drawdown is the stretch of time when your account is worth less than it was, with no way to know when it will recover. Couch Potato's worst decline was a moderate -27.0% — far shallower than the S&P 500's -50.8%. How long the pain lasted matters just as much: it spent as long as 38 months (about 3.2 years) below a prior high, versus 74 months (6.2 years) for the S&P 500.
A fall of -27.0% is the kind that tests conviction. If you needed this money for a house, a child's tuition, or retirement during such a slump, you could be forced to sell near the bottom — which is why money you will need within a few years usually belongs somewhere less exposed than this.
Results
| Statistic | S&P 500 (SPY) | Couch Potato |
|---|---|---|
| CAGR | 8.4% | 6.7% |
| Annualized volatility | 15.1% | 8.7% |
| Sharpe ratio | 0.61 | 0.80 |
| Sortino ratio | 0.91 | 1.21 |
| Max drawdown | -50.8% | -27.0% |
| Longest drawdown (months) | 74 | 38 |
| Growth of $10,000 | $81,660 | $54,922 |
Here is what those figures mean for a real saver. CAGR is the smoothed annual growth rate: at 6.7% a year, Couch Potato turned $10,000 into $54,922 over about 26 years, versus $81,660 for the S&P 500. Volatility (8.7% vs 15.1%) is how much the ride bounces from year to year. The Sharpe and Sortino ratios measure return earned per unit of risk (higher is better). And the maximum drawdown — the deepest peak-to-trough fall — is the number that decides whether you can actually stay invested.
Couch Potato used its risk more efficiently than the S&P 500 over this period, earning a higher risk-adjusted return (Sharpe 0.80 vs 0.61) despite a lower headline gain.
Figures are computed from monthly adjusted closing prices over Jul 2000–Jul 2026. Drawdowns are measured at month-end and so understate intra-month extremes.
Methodology
The two instruments
- VTI — Vanguard Total Stock Market ETF
- Every US stock, large and small — the core growth holding.
- TIP — iShares TIPS Bond ETF
- US inflation-protected Treasuries — they rise with inflation and defend purchasing power.
Backtest parameters
- Allocation
- 50% VTI / 50% TIP
- Benchmark
- S&P 500 (SPY)
- Data
- Monthly adjusted closing prices (dividends reinvested)
- Period
- Jul 2000 – Jul 2026 (history before an ETF's inception is extended with its older index/mutual-fund equivalent)
- Rebalance
- Yearly, at month-end
- Transaction costs
- None modelled
Advantages
- Dead simple and inflation-aware
- Two funds, one yearly rebalance, and the bond half is inflation-protected — so rising prices don't quietly erode the safe portion.
- A genuinely calm ride
- A 50% stock weight keeps drawdowns far below an all-stock portfolio, making it easy to stick with.
Disadvantages and risks
- Only two ingredients
- With just US stocks and TIPS, it has no foreign stocks, no gold, and no long-term Treasuries — diversifiers that help in specific crises.
- Lower long-run growth
- Holding half in bonds caps the upside; over long bull markets it trails stock-heavier portfolios by a wide margin.
Try it yourself
Every number on this page is reproduced by MarketHeist's free portfolio tool — change the weights, tickers, or rebalancing and watch the result update.
Open the Couch Potato portfolio in the live tool →Frequently asked questions
- What is the Couch Potato portfolio?
- A 50/50 split between the total US stock market and inflation-protected US Treasuries (TIPS), rebalanced once a year.
- Is the Couch Potato portfolio good?
- For a hands-off investor who values simplicity and inflation protection, yes. The trade-off is modest long-run growth and no international or real-asset diversification.
- Why use TIPS instead of regular bonds?
- TIPS rise with inflation, so the safe half of the portfolio keeps its purchasing power even when prices climb — a weakness of ordinary bonds.
References
Educational analysis of historical data, not investment advice. Past performance does not guarantee future results. Backtested results are hypothetical and computed from the MarketHeist portfolio engine on the parameters above.