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.'

Which means for our asset as example:- The total return, or performance over 5 years of Coffeehouse Portfolio is 32.3%, which is lower, thus worse compared to the benchmark SPY (97.7%) in the same period.
- Compared with SPY (26%) in the period of the last 3 years, the total return, or increase in value of 4.1% is lower, 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.'

Applying this definition to our asset in some examples:- Looking at the compounded annual growth rate (CAGR) of 5.8% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (14.6%)
- During the last 3 years, the annual performance (CAGR) is 1.3%, which is lower, thus worse than the value of 8% from the benchmark.

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:- The volatility over 5 years of Coffeehouse Portfolio is 12.5%, which is lower, thus better compared to the benchmark SPY (20.9%) in the same period.
- Compared with SPY (17.5%) in the period of the last 3 years, the historical 30 days volatility of 11.1% is smaller, thus better.

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. 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.'

Applying this definition to our asset in some examples:- Looking at the downside risk of 9.2% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (15%)
- During the last 3 years, the downside volatility is 7.8%, which is lower, thus better than the value of 12.3% from the benchmark.

'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.'

Which means for our asset as example:- Looking at the ratio of return and volatility (Sharpe) of 0.26 in the last 5 years of Coffeehouse Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.58)
- Compared with SPY (0.32) in the period of the last 3 years, the Sharpe Ratio of -0.1 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.'

Using this definition on our asset we see for example:- Looking at the ratio of annual return and downside deviation of 0.35 in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.81)
- Looking at excess return divided by the downside deviation in of -0.15 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.45).

'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.'

Which means for our asset as example:- The Downside risk index over 5 years of Coffeehouse Portfolio is 8.25 , which is lower, thus better compared to the benchmark SPY (9.32 ) in the same period.
- Compared with SPY (10 ) in the period of the last 3 years, the Ulcer Index of 9.66 is smaller, thus better.

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Which means for our asset as example:- The maximum reduction from previous high over 5 years of Coffeehouse Portfolio is -23.7 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Looking at maximum drop from peak to valley in of -20.1 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-24.5 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.'

Which means for our asset as example:- Compared with the benchmark SPY (488 days) in the period of the last 5 years, the maximum days below previous high of 630 days of Coffeehouse Portfolio is larger, thus worse.
- During the last 3 years, the maximum time in days below previous high water mark is 630 days, which is larger, thus worse than the value of 488 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.'

Applying this definition to our asset in some examples:- The average time in days below previous high water mark over 5 years of Coffeehouse Portfolio is 192 days, which is larger, thus worse compared to the benchmark SPY (123 days) in the same period.
- Compared with SPY (179 days) in the period of the last 3 years, the average days below previous high of 273 days is greater, thus worse.

Historical returns have been extended using synthetic data.
[Show Details]

- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Coffeehouse Portfolio are hypothetical and do not account for slippage, fees or taxes.
- Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.