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 (58.9%) in the period of the last 5 years, the total return, or increase in value of 26.2% of Coffeehouse Portfolio is lower, thus worse.
- Looking at total return in of 13.2% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (33.9%).

'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:- Looking at the annual performance (CAGR) of 4.8% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (9.7%)
- During the last 3 years, the compounded annual growth rate (CAGR) is 4.2%, which is lower, thus worse than the value of 10.2% 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.'

Using this definition on our asset we see for example:- The 30 days standard deviation over 5 years of Coffeehouse Portfolio is 12.3%, which is smaller, thus better compared to the benchmark SPY (21.6%) in the same period.
- Looking at historical 30 days volatility in of 14.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (25%).

'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:- Compared with the benchmark SPY (15.7%) in the period of the last 5 years, the downside risk of 9.1% of Coffeehouse Portfolio is smaller, thus better.
- Compared with SPY (18.1%) in the period of the last 3 years, the downside volatility of 10.9% 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:- Looking at the ratio of return and volatility (Sharpe) of 0.18 in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.33)
- Looking at ratio of return and volatility (Sharpe) in of 0.12 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.31).

'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:- Compared with the benchmark SPY (0.46) in the period of the last 5 years, the downside risk / excess return profile of 0.25 of Coffeehouse Portfolio is lower, thus worse.
- Looking at excess return divided by the downside deviation in of 0.16 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.43).

'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:- The Ulcer Index over 5 years of Coffeehouse Portfolio is 6.78 , which is smaller, thus better compared to the benchmark SPY (8.91 ) in the same period.
- Looking at Ulcer Index in of 8.47 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (11 ).

'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.'

Which means for our asset as example:- 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 higher, thus better in comparison to the benchmark SPY (-33.7 days)
- Looking at maximum drop from peak to valley 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:- The maximum time in days below previous high water mark over 5 years of Coffeehouse Portfolio is 308 days, which is larger, thus worse compared to the benchmark SPY (271 days) in the same period.
- During the last 3 years, the maximum time in days below previous high water mark is 308 days, which is greater, thus worse than the value of 271 days from the benchmark.

'The Average 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. 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:- Compared with the benchmark SPY (60 days) in the period of the last 5 years, the average time in days below previous high water mark of 75 days of Coffeehouse Portfolio is greater, thus worse.
- Looking at average time in days below previous high water mark in of 97 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (72 days).

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.