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%

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (77.4%) in the period of the last 5 years, the total return, or performance of 33.2% of Coffeehouse Portfolio is smaller, thus worse.
- During the last 3 years, the total return, or increase in value is 17.3%, which is lower, thus worse than the value of 43.3% from the benchmark.

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Applying this definition to our asset in some examples:- Looking at the compounded annual growth rate (CAGR) of 5.9% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (12.1%)
- Looking at annual performance (CAGR) in of 5.5% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (12.7%).

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Which means for our asset as example:- Compared with the benchmark SPY (19%) in the period of the last 5 years, the 30 days standard deviation of 10.6% of Coffeehouse Portfolio is lower, thus better.
- Compared with SPY (22%) in the period of the last 3 years, the volatility of 12.1% is lower, thus better.

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (13.9%) in the period of the last 5 years, the downside risk of 8% of Coffeehouse Portfolio is lower, thus better.
- Looking at downside risk in of 9.3% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (16.2%).

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:- Compared with the benchmark SPY (0.51) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.32 of Coffeehouse Portfolio is lower, thus worse.
- Compared with SPY (0.46) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.24 is smaller, thus worse.

'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 (0.7) in the period of the last 5 years, the excess return divided by the downside deviation of 0.42 of Coffeehouse Portfolio is smaller, thus worse.
- During the last 3 years, the excess return divided by the downside deviation is 0.32, which is smaller, thus worse than the value of 0.63 from the benchmark.

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Which means for our asset as example:- Compared with the benchmark SPY (5.87 ) in the period of the last 5 years, the Ulcer Index of 4.14 of Coffeehouse Portfolio is lower, thus better.
- During the last 3 years, the Ulcer Ratio is 4.96 , which is lower, thus better than the value of 7.01 from the benchmark.

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Applying this definition to our asset in some examples:- Looking at the maximum reduction from previous high of -23.7 days in the last 5 years of Coffeehouse Portfolio, we see it is relatively greater, thus better in comparison to the benchmark SPY (-33.7 days)
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum DrawDown of -23.7 days is larger, thus better.

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs) in days.'

Using this definition on our asset we see for example:- The maximum days under water over 5 years of Coffeehouse Portfolio is 155 days, which is larger, thus worse compared to the benchmark SPY (139 days) in the same period.
- During the last 3 years, the maximum time in days below previous high water mark is 141 days, which is larger, thus worse than the value of 139 days from the benchmark.

'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:- Looking at the average days below previous high of 43 days in the last 5 years of Coffeehouse Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (37 days)
- Compared with SPY (45 days) in the period of the last 3 years, the average days below previous high of 45 days is higher, thus worse.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal 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.