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 investmentâ€™s overall performance.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (68.1%) in the period of the last 5 years, the total return of 21.6% of Coffeehouse Portfolio is lower, thus worse.
- Looking at total return, or performance in of 15.7% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (47%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (11%) in the period of the last 5 years, the annual performance (CAGR) of 4% of Coffeehouse Portfolio is lower, thus worse.
- Compared with SPY (13.7%) in the period of the last 3 years, the annual return (CAGR) of 5% is lower, thus worse.

'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.'

Applying this definition to our asset in some examples:- Looking at the volatility of 12.3% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (21.4%)
- Looking at volatility in of 11.3% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (18.7%).

'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.'

Which means for our asset as example:- Looking at the downside volatility of 9.1% in the last 5 years of Coffeehouse Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (15.4%)
- Compared with SPY (13.3%) in the period of the last 3 years, the downside deviation of 8% is lower, thus better.

'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 risk / return profile (Sharpe) of 0.12 in the last 5 years of Coffeehouse Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.4)
- During the last 3 years, the Sharpe Ratio is 0.22, which is lower, thus worse than the value of 0.6 from the benchmark.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (0.55) in the period of the last 5 years, the excess return divided by the downside deviation of 0.16 of Coffeehouse Portfolio is smaller, thus worse.
- During the last 3 years, the ratio of annual return and downside deviation is 0.31, which is lower, thus worse than the value of 0.84 from the benchmark.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (9.45 ) in the period of the last 5 years, the Ulcer Index of 7.4 of Coffeehouse Portfolio is smaller, thus better.
- During the last 3 years, the Ulcer Ratio is 8.26 , which is smaller, thus better than the value of 10 from the benchmark.

'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.'

Using this definition on our asset we see for example:- Looking at the maximum drop from peak to valley 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)
- Looking at maximum drop from peak to valley in of -20.2 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 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.'

Applying this definition to our asset in some examples:- Looking at the maximum days below previous high of 388 days in the last 5 years of Coffeehouse Portfolio, we see it is relatively higher, thus worse in comparison to the benchmark SPY (351 days)
- Looking at maximum days under water in of 388 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (351 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (78 days) in the period of the last 5 years, the average days under water of 96 days of Coffeehouse Portfolio is greater, thus worse.
- Looking at average time in days below previous high water mark in of 117 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (101 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.