The Coffeehouse Portfolio was popularized by financial advisor Bill Schultheis in the best-selling book The Coffeehouse Investor. It is part of what we could call "Lazy Portfolios".

The Coffeehouse Portfolio consists of 7 funds. It starts with a 60/40 stock bond allocation. The 60% in stocks is allocated to a large-cap fund, a large-cap value fund, a small-cap fund, a small-cap value fund, an international fund, and a REIT fund.

Asset Class Portfolio Weight

Large Cap 10%

Large Cap Value 10%

Small Cap 10%

Small Cap Value 10%

International 10%

REIT 10%

Total Bond 40%

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Applying this definition to our asset in some examples:- Looking at the total return, or performance of 31.1% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (66.2%)
- Compared with SPY (47.5%) in the period of the last 3 years, the total return of 23.3% is smaller, thus worse.

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (10.7%) in the period of the last 5 years, the annual return (CAGR) of 5.6% of Coffeehouse Portfolio is lower, thus worse.
- During the last 3 years, the annual return (CAGR) is 7.2%, which is smaller, thus worse than the value of 13.9% from the benchmark.

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Applying this definition to our asset in some examples:- The volatility over 5 years of Coffeehouse Portfolio is 7.2%, which is smaller, thus better compared to the benchmark SPY (13.3%) in the same period.
- Looking at volatility in of 6.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.5%).

'Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (14.6%) in the period of the last 5 years, the downside deviation of 7.9% of Coffeehouse Portfolio is lower, thus better.
- Compared with SPY (14.2%) in the period of the last 3 years, the downside volatility of 7.9% is smaller, thus better.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Which means for our asset as example:- Compared with the benchmark SPY (0.62) in the period of the last 5 years, the Sharpe Ratio of 0.42 of Coffeehouse Portfolio is smaller, thus worse.
- Looking at ratio of return and volatility (Sharpe) in of 0.7 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.91).

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.56) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.39 of Coffeehouse Portfolio is lower, thus worse.
- Looking at ratio of annual return and downside deviation in of 0.6 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.8).

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Using this definition on our asset we see for example:- Looking at the Downside risk index of 2.86 in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (3.96 )
- Looking at Ulcer Ratio in of 2.51 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (4.01 ).

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Applying this definition to our asset in some examples:- The maximum drop from peak to valley over 5 years of Coffeehouse Portfolio is -11.2 days, which is greater, thus better compared to the benchmark SPY (-19.3 days) in the same period.
- Looking at maximum DrawDown in of -11.2 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (-19.3 days).

'The Maximum Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Applying this definition to our asset in some examples:- The maximum days under water over 5 years of Coffeehouse Portfolio is 278 days, which is greater, thus worse compared to the benchmark SPY (187 days) in the same period.
- Compared with SPY (139 days) in the period of the last 3 years, the maximum days under water of 141 days is higher, thus worse.

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Which means for our asset as example:- The average time in days below previous high water mark over 5 years of Coffeehouse Portfolio is 59 days, which is larger, thus worse compared to the benchmark SPY (41 days) in the same period.
- Compared with SPY (36 days) in the period of the last 3 years, the average days below previous high of 38 days is larger, thus worse.

Historical returns have been extended using synthetic data.
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- "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
- Performance results of Coffeehouse Portfolio are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.