The hot potato follows an aggressive strategy that requires a good deal of attention. As a result, it’s not suitable for everyone
School is back and everyone is getting reacquainted with their friends – and the viruses they brought home from summer vacation. Alas, many unfortunates, myself included, have been afflicted by second-hand seasonal bugs.
The hot potato achieved success by investing all of its money in one of four major asset classes – Canadian bonds, Canadian, U.S. stocks and international stocks – each month. The idea is to select the asset class with the highest returns over the prior 12 months and move everything into a low-cost index fund, or exchange-traded fund , that tracks it.
Alternately, the passive potato portfolio offers a more conservative approach geared to a broader spectrum of investors. It buys an equal amount of the four major asset classes used by the hot potato with the goal of taking a fairly hands-off approach to investing via low-fee index funds and ETFs. You can examine the performance of both potato portfolios in the accompanying graphs. The first shows their long-term growth and the second shows how the portfolios fared in downturns.
The first graph shows the hot potato’s good relative performance in the early years. It sported average annual gains of 15.1 per cent from the end of January, 1994, to the end of 2007, while the passive potato climbed by an average of 8 per cent annually. Moving past the 2008-09 period, the hot potato climbed by an average of 11.3 per cent annually from the end of 2009 to the end of August, 2024, while the passive potato advanced by an average of 8.7 per cent annually.
End Potato Cent Average Index Approach Portfolio Order U.S. Federal Reserve S&P Bloomberg
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