Coffeehouse Portfolio 5 Yr Review

[dimwit]

I don't precisely do coffeehouse allocations since I'm stuck with a certain amount of company stock (4% matching funds go into company stock) and my home in lieu of REITS. I am also heavily weighted in S&P500 - but ready to reallocate in the next coming months.

I am surprised by coffeehouse's editorial comment:

Quote:

From a financial standpoint, it is gratifying to see the profound impact that our philosophy has had on investors’ lives. While Wall Street’s beloved blue chip stocks are still under water for the five year period ending June 30, 2005, our simple, seven-index fund Coffeehouse portfolio that includes a healthy 40 percent allocation to bonds, has generated an annualized return of 7.6 percent during the same period – and with significantly less volatility to boot.

It is almost is as if I didn't need to work the last 5 years since my large contributions overall along with my portfolio perfromance is about equal to this rate of return! But then again I'm not including my house which is probably the big gainer equivalent to REITS.

Wish I was more FIRE educated 5 years ago. Now I just gotta get my mind set to re-distruibute my heavily weight S&P 500 - maybe nows a good time at its 4 year high.

[wabmester]

Be careful looking at past returns. Any portfolio heavily invested in bonds did well over the last 5 years, because bonds had great appreciation as rates fell. A 100% bond portfolio would have also given you around 8% annualized returns over the last 5 years, but that doesn't mean you should switch to 100% bonds.

[ESRBob]

I'm not sure Coffehouse's big returns were from bonds, though. They invest in small and international stocks, which also did really well. Remains to see how international does in the next few years, since the dollar has been steadily strengthening. Still, that is the beauty of the CoffeeHouse approach -- there is always something going up, something going down and something going sideways. Overall, though, the numbers keep chugging ahead.

I almost like to look in my portfolio and see asset classes that are down, because they say, in effect, that the system is working. If everything went up together, then I know that everything can go down together, too. (It can, but if I have picked correctly, it is not too likely).

[wabmester]

Quote:

Originally Posted by ESRBob If everything went up together, then I know that everything can go down together, too.

I'm still expecting that surprise result for the next few years: we'll see just about all asset classes correlated as inflation and interest rates rise (I suppose to be safe, I should say "if" they rise). In theory, that should kill bonds, both domestic and international stocks, and real estate. Cash and commodities might do well in that environment, though.

[ESRBob]

Rising interest rates historically have trashed pretty much everything except commodities. Not even sure how well cash does in periods of rising interest rates if if real interest rates don't rise, but even if real interest rates are plumper, cash is never going to be the thing that powers my portfolio to the point of fully supporting the safe withdrawal rate.

Still, having predicted rising interest rates for the past few years, it may be time to admit that I have no clue (and I wonder if anybody actually does) about what exactly is going to happen to interest rates, or when, or why.

Thus I slice and index and allocate my assets, secure in the knowledge that I am ignorant.

[Spanky]

During periods of rising interest rates, stocks of consumer staples, gold-mining, commodities as inflation hedge should hold up well. TIPS or Ibonds may do fine as well.