The Coffeehouse Portfolio

“The most of us don´t need professional planer. We actually don´t need a complete elaborated plan, conservative money management isn´t difficult. In order to be your own stock exchange guru, you just need an array of goals, a few easy financial Investment-opportunities, realistic expectations, a time-frame, which allows your investments to develop, and a good aligned polygraph which conserves you of falling for buy recommendations of bounders.”

Jane Bryant Quin, “Making the most of your Money”

In 1998 the former broker of the investment house Salomon Smith Barney, Bill Schultheis released a small book with the title “The Coffeehouse Investor”. The book was very easy to read but despite that it clearly explained the bases of successful investing.

Bill uses 3 simple principles to build up a successful Portfolio :

Saving : Start as early as possible and save your money consistently.
Diversification : Spread your risk by buying more than just one fond, stock or bond issue.
Index : The only thing you have to achieve is being on average, and you are the winner.

The simple Coffeehouse Portfolio consists of a 60:40 mixture of stocks and bond issues. Whereby the bond issues stake clones a medium-term corporate bond Index and the stock stake in the same parts the S&P500,Large Value Index, Small Index, Small-Cap Value Index, MSCI EAFE International Index, and the REIT Index. In the bear market of 2000 and 2001 when the Dow felled at 12 %, the S&P at 20 and the NASDAQ lost whole 50 %. This simple portfolio had an average performance of 5,3 % per year.

A possible Coffeehouse Portfolio

Just Relax and it will work at best

Investigations resulted in the fact that the performance of the coffeehouse portfolio is at best when you never justify it. You can check that by yourself on Bill´s website. So you can beat the market while you relax in a coffeehouse, drink some coffee and the only thing you have to do is nothing.

February 26, 2008 | Filed Under Investing