Bill Schultheis' "Coffeehouse" portfolio is a 7-fund portfolio popularized by his book. This portfolio is a moderate risk portfolio with 40% in an intermediate bond fund and in equal weight 10% in 5 risk stock asset classes.
Large Blend 10%
Large Value 10%
Small Blend 10%
Small Value 10%
Total International 10%
Intermediate Term Bond Index 40%
For retirement plan investors, it is thus interesting to adopt the above lazy portfolio in one's IRA or taxable account. However more and more active investors are concerned about the economic 'structural' problems including high private household's debts, national debts and our long term work force or next generation competitiveness. The behavior of stock markets in the last several weeks is a reflection on this.
In such an environment, it is key to have proper asset allocation in place for one's retirement investment portfolios. In addition to lazy or strategic asset allocation, one can look into tactical asset allocation. We use the following ETFs to form an investment plan The Coffee House Lazy Portfolio ETF Version:
|Intermediate-Term Bond||BND||Vanguard Total Bond Market ETF|
|REAL ESTATE||VNQ||Vanguard REIT Index ETF|
|SMALL BLEND||VB||Vanguard Small Cap ETF|
|SMALL VALUE||VBR||Vanguard Small Cap Value ETF|
|LARGE BLEND||VTI||Vanguard Total Stock Market ETF|
|Foreign Large Blend||VEU||Vanguard FTSE All-World ex-US ETF|
|LARGE VALUE||VTV||Vanguard Value ETF|
The Coffee House Lazy Portfolio ETF Version's 401K plan consists of 7 funds. These funds enable participants to gain exposure to 4 major assets: U.S. Equity, Foreign Equity, REITs, Fixed Income.
As of Sep 8, 2011, this plan investment choice is rated as average based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as poor (9%)
Fund Quality -- Rated as above average (70%)
Portfolio Building -- Rated as average (54%)
Overall Rating: average (45%)
Two model portfolios are constructed: one is based on strategic asset allocation and the other is based on tactical asset allocation. The following shows the performance comparison for the two model portfolios, compared with a standard four core asset ETF plan.
Performance chart (as of Sep 8, 2011)
[Click to enlarge]
Performance table (as of Sep 8, 2011)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|The Coffee House Lazy Portfolio ETF Version Tactical Asset Allocation Moderate||10%||92%||9%||76%||8%||69%|
|The Coffee House Lazy Portfolio ETF Version Strategic Asset Allocation Moderate||8%||45%||5%||16%||4%||12%|
|Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate||9%||75%||9%||81%||8%||70%|
|Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate||6%||44%||5%||18%||4%||13%|
Currently Commodities, International Bonds and Fixed Income are doing well. Unfortnately, Coffee House plan only allows exposure to the fixed income (bond) at the moment to take advantage of the current trend.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.