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.'

Applying this definition to our asset in some examples:- The total return, or increase in value over 5 years of Coffeehouse Portfolio is 25.1%, which is lower, thus worse compared to the benchmark SPY (60.9%) in the same period.
- Compared with SPY (34.2%) in the period of the last 3 years, the total return, or performance of 13.6% 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.'

Which means for our asset as example:- Compared with the benchmark SPY (10%) in the period of the last 5 years, the annual return (CAGR) of 4.6% of Coffeehouse Portfolio is lower, thus worse.
- During the last 3 years, the annual return (CAGR) is 4.3%, which is lower, thus worse than the value of 10.3% from the benchmark.

'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:- The historical 30 days volatility over 5 years of Coffeehouse Portfolio is 10.3%, which is smaller, thus better compared to the benchmark SPY (18.7%) in the same period.
- During the last 3 years, the volatility is 11.7%, which is smaller, thus better than the value of 21.5% from the benchmark.

'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:- Looking at the downside risk of 7.8% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.6%)
- Looking at downside risk in of 9% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (15.7%).

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Using this definition on our asset we see for example:- Looking at the risk / return profile (Sharpe) of 0.2 in the last 5 years of Coffeehouse Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.4)
- Compared with SPY (0.36) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.16 is lower, thus worse.

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Applying this definition to our asset in some examples:- The ratio of annual return and downside deviation over 5 years of Coffeehouse Portfolio is 0.27, which is lower, thus worse compared to the benchmark SPY (0.55) in the same period.
- Compared with SPY (0.5) in the period of the last 3 years, the ratio of annual return and downside deviation of 0.21 is smaller, thus worse.

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Which means for our asset as example:- Compared with the benchmark SPY (5.82 ) in the period of the last 5 years, the Ulcer Index of 4.07 of Coffeehouse Portfolio is lower, thus better.
- Looking at Ulcer Index in of 4.73 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (6.86 ).

'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.'

Using this definition on our asset we see for example:- The maximum drop from peak to valley over 5 years of Coffeehouse Portfolio is -23.7 days, which is greater, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Looking at maximum DrawDown in of -23.7 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (-33.7 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:- Looking at the maximum days below previous high of 220 days in the last 5 years of Coffeehouse Portfolio, we see it is relatively greater, thus worse in comparison to the benchmark SPY (187 days)
- Looking at maximum time in days below previous high water mark in of 141 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (139 days).

'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.'

Applying this definition to our asset in some examples:- The average days under water over 5 years of Coffeehouse Portfolio is 50 days, which is greater, thus worse compared to the benchmark SPY (43 days) in the same period.
- Compared with SPY (39 days) in the period of the last 3 years, the average days below previous high of 39 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.