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Review Of The Coffeehouse Investor

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Millennial Money Snapshot: Don’t trust Wall Street or buy “trendy” sector funds or ETFs – build a low expense ratio market index fund based portfolio split 60% stocks. This portfolio is designed to provide a long-term, diversified approach to investing that will help you achieve your financial goals. Overall a diversified portfolio, but likely too conservative for most Millennial investors with a long term horizon.

If you are new to investing and want a short primer on why you should pick a simple investing strategy there are few better books than The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life by Bill Schultheis. It is an easy to read guide about setting up an investment portfolio that requires very little maintenance, and will, based on historical performance, achieve solid investment returns over a long time horizon. This guide will help you make the most of your investments and make sure you are prepared for market fluctuations in the future. His approach is based on saving as much as possible in order to maximize long-term returns. It is possible for investors to ensure that they are taking a responsible approach to their investments and achieving their financial goals by doing so.

Although the author was a broker at Smith Barney, he spends a lot of time talking about how most investors should ignore Wall Street, which he believes is mostly a big marketing machine trying to sell investors on new “trendy” investment products. The Coffeehouse Investor outlines a strategy that takes the hassle and uncertainty out of investing, allowing investors to take control of their finances and build a secure financial future without needing to rely on Wall. Even though it’s difficult for an average investor to beat the stock market, it’s even harder for professionals to beat it. The markets are efficient and incorporate all available information into the prices of securities.

According to the author, only 14 percent of all managed mutual funds beat the stock market average in each of the last three, ten, and fifteen year periods. This shows that investors should be wary of actively managed funds and should invest in low-cost index funds instead. 42). If you invested in an index fund that tracked most of the US stock market over the past 100 years, he shows in the book, you would have generated a positive return. Investing in the stock market can be beneficial over the long-term, and why it should be a part of every investor’s portfolio. The Vanguard Toal Stock Market Index Fund tracks the performance of the US stock market. The fund has a low-cost option for investors.

The Coffeehouse “Lazy Portfolio”

A simple investing plan built on establishing an investment portfolio of low cost index funds that will generate positive returns over a long time period is presented in this book. The plan is designed to help investors achieve their financial goals without having to become an expert in stock market investing. In 1999 before the dot-com bust Bill developed what is now known as the Coffeehouse “Lazy Portfolio” approach. During the dot-com bust, Bill was able to beat the S&P 500 by 15% because of his 60% stocks/ 40% bonds portfolio. Having a diverse portfolio is a great strategy to hedge against market fluctuations.

Arguably a pretty conservative investment approach, the historical performance of the Coffeehouse portfolio has been strong over time – generating 5%+ over the past 10 years, but it still falls short when compared to investing in a total stock market index fund or S&P 500 fund that track those market indexes. Over the past 10 years, a portfolio with the Coffeehouse portfolio mix of funds would have returned an average of 5.57% annually, which is below the 7.05% annual returns of the S&P 500. The portfolio mix has provided a steady return but lags behind the broader market. Here is an example of the Coffeehouse portfolio made up of diversified low-cost Vanguard index funds (with Bill’s recommended percentage allocation):

40% Vanguard Total Bond Market Index Fund 

10% Vanguard 500 Index Fund

10% Vanguard Total International Stock Index Fund

10% Vanguard Value Index Fund

10% Vanguard Small Cap Index Fund

10% Vanguard Small Cap Value Index Fund

10% Vanguard REIT Index Fund

The Coffeehouse Investor approach is too conservative for the average investor. The long-term investment horizon of the young people should be used to build a diversified portfolio that can weather market fluctuations. As a 30 year old investor, I have more long-term investments in equities than Bill has. I think this is a good decision, considering the potential returns that stocks have to offer. While I am taking on more risk, I can still sleep well at night because I know that my portfolio will have greater returns, which can compound into even greater returns. I am confident that I have allocated my assets in a way that will maximize my potential returns and minimize my risks. I currently have part of my own investment portfolio in low cost index funds like the Vanguard’s I can keep more of my money because the Total Stock Market Index Fund has a very low expense ratio. VTSAX is an excellent choice for passive investing. During the time period that included the Great Recession, the stock market index fund has generated 8.33% annual returns. It is an impressive feat that the market average has not performed as well as it could.

One of the highlights of the book was his chapter on inflation, which erodes your savings over time, but can be beaten with a solid long-term investment approach. There are a few simple tips for anyone looking for guidance on how to protect their wealth from inflation. The things that you buy today will cost more in the future and in some cases more money. You are losing money on your money over time when you save money in a saving account that has had less than 1% returns over the past few years. The longer you save money in a low interest account, the more money you lose due to inflation. Investing your money is the only way to beat inflation. Ensure that your investments are diversified and include a variety of different asset classes to protect against market volatility. I only keep 3 months of living expenses in a high interest Ally savings account because my job is secure and I put the rest in the market and let it work for me over time. I use a retirement fund to set aside money for the future in addition to the investments I have in the market.

Bill wants you to look at your portfolio once a year to match your desired asset allocation. It is important that your desired asset allocation is based on your current financial situation and long-term goals. I use and other personal finance apps, but make sure not to touch the principle of my investment unless I am re-balancing to my desired allocation. I make sure to review any changes in the market that may affect my portfolio.

Key Data

  • “42 percent of millionaires in the United States make less than one transaction per year in their investment portfolios” (page 7)
  • “The stock market average consistently outperforms 75-85% of all managed mutual funds” (page 57)
  • “From 1978 to 2007, a $10,000 investment in the stock market average would have grown, with dividends reinvested, to $386,140.” (page 76)


There are no big secrets in this book, but the common sense investing approach is in line with the Millennial Money philosophy of letting your money do the work of building wealth while you are out living an awesome life. By following the common sense investing approach outlined in this book, you can ensure that your money is working hard to build wealth while you focus on creating an amazing life. While the overall approach highlighted in The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Lifemight be too conservative for most Millennials until they reach the age of 40+, this is definitely worth the read for the new investor who is looking for a common sense low-cost investing approach (with the data to back it up).

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