The Coffeehouse Portfolio

Billschultheis

” Remember, past performance is no guarantee of future returns. But a simple philosophy of creating a long term financial plan, diversifying in different baskets and capturing the entire return of each basket, has a far greater chance of serving you well than trying to keep up with the whims of the Wall Street crowd. “
Bill Schultheis at Coffeehouse Returns | The Coffeehouse Investor

The Coffeehouse portfolio is an indexed seven-fund portfolio popularized by financial planner and author Bill Schultheis. The portfolio holds the following asset classes:

  • US large cap stocks
  • US large value stocks
  • US small cap stocks
  • US small cap value stocks
  • US REITS
  • International stocks
  • US intermediate bonds

The portfolio has a 60% equity/40% fixed income allocation and allocates a 10% slice to the six equity investments.

The Coffeehouse portfolio tilts the US stock allocation towards value stocks by devoting an equal allocation to large cap and small cap market index funds with large cap and small cap value index funds.

The portfolio uses a total international index fund for the international stock allocation, and a US intermediate-term bond index fund for bond allocations.

See the chart below (click image to enlarge).

Coffeehouseportfolio (2)

Coffeehouse 60/40 allocation

Vanguard allocations

The table below shows Coffeehouse portfolio allocations using Vanguard index funds and exchange-traded funds The portfolio can be implemented with index funds offered by other fund providers or exchange-traded funds.

Vanguard investors with larger portfolios can also use lower cost admiral shares for fund allocations.

Vanguard fund allocations

Asset class Vanguard investor share Expense ratio Vanguard admiral share Expense ratio Vanguard ETF Expense ratio
US large cap VFNIX 0.17% VFIAX 0.05% V00 0.05%
US large value VIVAX 0.24% VVIAX 0.10% VTV 0.10%
US small cap NAESX 0.24% VSMAX 0.10% VB 0.10%
US small value VISVX 0.24% VSIAX 0.10% VBR 0.10%
REITs VGSIX 0.24% VGSLX 0.10% VNQ 0.10%
International VGTSX 0.22% VTIAX 0.14% VXUS 0.14%
Intermediate bond VBMFX 0.20% VBTLX 0.10% BND 0.10%
Returns

The returns history for an implemented Coffeehouse portfolio, included in the table below, consists of the performance history of Vanguard investor share index funds The second table provides compound returns and standard deviation of returns for 3 year, 5 year, 10 year, 15 year, 20 year, and full period returns.

The returns period includes portfolio performance during the two bear markets in the 2000 -2010 decade, as well as subsequent recoveries. Keep in mind that past performance does not forecast future performance.

Year Return
2013 14.88%
2012 11.93%
2011 2.06%
2010 14.68%
2009 20.26%
2008 -20.21%
2007 2.63%
2006 15.15%
2005 6.24%
2004 13.80%
2003 23.54%
2002 -5.56%
2001 1.88%
2000 7.25%
1999 8.30%
1998 6.89%
1997 17.95%
1996 14.53%
1995 22.90%
1994 -0.58%
1993 15.65%
1992 9.57%
1991 23.55%

Compound returns

Term CAGR return Standard deviation
3 year 9.48% 6.71%
5 year 12.60% 6.70%
10 year 7.51% 11.57%
15 year 7.23% 10.92%
20 year 7.52% 10.49%
23 year 9.38% 10.29%
Many roads to Dublin

A commonplace principle of prudent investing is to adopt and stick to a long-term diversified investment program. The tables below show results for the Coffeehouse portfolio along with 60/40 allocations for the popular three-fund and core four portfolios.

CAGR

Portfolio 3yr 5yr 10yr 15yr
Three-fund CAGR 9.26% 12.02% 7.11% 5.92%
Core four CAGR 8.86% 11.92% 7.18% 6.26%
Coffeehouse CAGR 9.48% 12.60% 7.51% 7.23%

Standard deviation

Portfolio 3yr 5yr 10yr 15yr
Three-fund standard deviation 7.75% 7.44% 11.61% 11.88%
Core standard deviation 6.79% 7.11% 11.60% 11.48%
Coffeehouse standard deviation 6.71% 6.70% 11.57% 10.92%

See Coffeehouse portfolio, google drive spreadsheet for return computations.

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

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September 2014
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