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Bill Schultheis's "Coffeehouse" portfolio is a 7-fund portfolio popularized by Bill Shultheis' 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%
  • REIT 10%
  • Intermediate Term Bond Index 40%

More information can be found in The Coffeehouse Investor. Paul Farrell at MarketWatch.com also maintained this portfolio on his lazy portfolio page.

We construct an ETF investment plan using ETFs to represent the above asset classes. They are all low cost Vanguard ETFs. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs, Fixed Income.

Asset Class Ticker Name
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

Because the ETFs do not have exposures in emerging market stocks (VWO, EEM) and commodities (DBC), the portfolios have been doing well year to date. The following table and chart compares the active asset allocation model portfolios with those of a typical 4 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

  • US Equity: SPY or VTI
  • Foreign Equity: EFA or VEU
  • REITs: IYR or VNQ or ICF
  • Fixed Income: AGG or BND

Performance chart (as of Nov 29, 2011)


(Click to enlarge)

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 8% 68% 8% 71% 7% 50%
The Coffee House Lazy Portfolio ETF Version Strategic Asset Allocation Moderate -0% -21% 13% 60% 2% 1%
Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate 7% 54% 9% 78% 7% 54%
Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate 0% -19% 14% 69% 2% 3%

The following compares the two active model portfolios with the original lazy portfolio:

Portfolio Performance Comparison (as of 11/29/2011)

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Coffee House 2% -14% 15% 72% 3% 4%
The Coffee House Lazy Portfolio ETF Version Tactical Asset Allocation Moderate 8% 68% 8% 71% 7% 50%
The Coffee House Lazy Portfolio ETF Version Strategic Asset Allocation Moderate -0% -21% 13% 60% 2% 1%

More detailed comparison.

Apparently, the tactical portfolio has done better than the original lazy portfolio. On the other hand, the equal weight strategic asset allocation portfolio under performed the original portfolio, indicating value added by the original one.

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.

Source: Active Asset Allocation Using ETFs In The Coffee House Lazy Portfolio