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 is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:- The total return, or performance over 5 years of Coffeehouse Portfolio is 18%, which is lower, thus worse compared to the benchmark SPY (60.7%) in the same period.
- During the last 3 years, the total return, or performance is 5%, which is smaller, thus worse than the value of 29.5% from the benchmark.

'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 annual performance (CAGR) of 3.4% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (10%)
- Compared with SPY (9%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 1.6% is lower, thus worse.

'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.'

Using this definition on our asset we see for example:- The historical 30 days volatility over 5 years of Coffeehouse Portfolio is 11.7%, which is smaller, thus better compared to the benchmark SPY (20.8%) in the same period.
- Looking at volatility in of 13.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (24%).

'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.'

Which means for our asset as example:- The downside risk over 5 years of Coffeehouse Portfolio is 8.9%, which is lower, thus better compared to the benchmark SPY (15.3%) in the same period.
- Looking at downside volatility in of 10.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (17.6%).

'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:- Looking at the ratio of return and volatility (Sharpe) of 0.07 in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.36)
- Compared with SPY (0.27) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of -0.06 is lower, 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.49) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.1 of Coffeehouse Portfolio is lower, thus worse.
- Looking at downside risk / excess return profile in of -0.08 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.37).

'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.'

Using this definition on our asset we see for example:- Looking at the Ulcer Ratio of 5.54 in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (7.52 )
- Looking at Ulcer Ratio in of 6.73 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (8.81 ).

'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:- Looking at the maximum DrawDown of -23.7 days in the last 5 years of Coffeehouse Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (-33.7 days)
- Looking at maximum DrawDown in of -23.7 days in the period of the last 3 years, we see it is relatively greater, 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.'

Which means for our asset as example:- Compared with the benchmark SPY (182 days) in the period of the last 5 years, the maximum days under water of 219 days of Coffeehouse Portfolio is higher, thus worse.
- Compared with SPY (182 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 219 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (45 days) in the period of the last 5 years, the average days under water of 59 days of Coffeehouse Portfolio is greater, thus worse.
- Compared with SPY (43 days) in the period of the last 3 years, the average time in days below previous high water mark of 66 days is greater, 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.