What is the Coffeehouse portfolio?

Six equal 10% stock slices (large, large value, small, small value, international, REITs) plus a 40% total-bond anchor, rebalanced yearly — from Bill Schultheis's book The Coffeehouse Investor.

Is the Coffeehouse portfolio good?

It is a thoughtfully diversified, tilt-toward-value portfolio with a calm ride. Whether the tilts help depends on the era — they have long stretches of both leading and lagging.

Why so many stock slices?

Each slice targets a different part of the market (size, value, geography, real estate), spreading risk and tilting toward factors linked to higher long-run returns.

Does the Coffeehouse portfolio work?

By Jeffrey Lin · Published 2026-08-24 · Updated 2026-08-24

The Coffeehouse portfolio, from Bill Schultheis, spreads its stock money across six equal 10% slices — large, large value, small, small value, international, and real estate — anchored by a 40% total-bond position. The value and small-cap tilts aim to add return, while the big bond stake keeps the ride steady.

From Jun 1996 to Jul 2026, a yearly-rebalanced Coffeehouse portfolio returned 7.6% per year with a maximum drawdown of -34.2% — versus 10.2% and -50.8% for S&P 500 (SPY) alone. It gave up some return for materially lower risk, producing a higher Sharpe ratio (0.79 vs 0.71). $10,000 grew to $91,155 (vs $188,208 in the S&P 500).

What's in it: the allocation

VV10%
VTV10%
VB10%
VBR10%
VXUS10%
VNQ10%
BND40%

Growth of $10,000

Growth of a $10,000 investment, Jun 1996–Jul 2026. The Coffeehouse line rises more slowly than the S&P 500 but with visibly shallower dips — the trade-off the strategy is designed to make.

What an investor actually experiences: drawdowns

Decline from the prior peak — the "underwater" curve.

A drawdown is the stretch of time when your account is worth less than it was, with no way to know when it will recover. Coffeehouse's worst decline was a deep -34.2% — far shallower than the S&P 500's -50.8%. How long the pain lasted matters just as much: it spent as long as 34 months (about 2.8 years) below a prior high, versus 74 months (6.2 years) for the S&P 500.

A fall of -34.2% is the kind that tests conviction. If you needed this money for a house, a child's tuition, or retirement during such a slump, you could be forced to sell near the bottom — which is why money you will need within a few years usually belongs somewhere less exposed than this.

Results

Statistic	S&P 500 (SPY)	Coffeehouse
CAGR	10.2%	7.6%
Annualized volatility	15.3%	9.9%
Sharpe ratio	0.71	0.79
Sortino ratio	1.09	1.19
Max drawdown	-50.8%	-34.2%
Longest drawdown (months)	74	34
Growth of $10,000	$188,208	$91,155

Here is what those figures mean for a real saver. CAGR is the smoothed annual growth rate: at 7.6% a year, Coffeehouse turned $10,000 into $91,155 over about 30 years, versus $188,208 for the S&P 500. Volatility (9.9% vs 15.3%) is how much the ride bounces from year to year. The Sharpe and Sortino ratios measure return earned per unit of risk (higher is better). And the maximum drawdown — the deepest peak-to-trough fall — is the number that decides whether you can actually stay invested.

Coffeehouse used its risk more efficiently than the S&P 500 over this period, earning a higher risk-adjusted return (Sharpe 0.79 vs 0.71) despite a lower headline gain.

Figures are computed from monthly adjusted closing prices over Jun 1996–Jul 2026. Drawdowns are measured at month-end and so understate intra-month extremes.

Methodology

The two instruments

VV — Vanguard Large-Cap ETF: Large, established US companies.
VTV — Vanguard Value ETF: Cheaper, established US companies — a 'value' tilt that has historically added return over the long run.
VB — Vanguard Small-Cap ETF: Smaller US companies — higher potential return with bigger swings.
VBR — Vanguard Small-Cap Value ETF: Small, cheap US companies — a strong historical tilt, but a bumpy one.
VXUS — Vanguard Total International Stock ETF: Every non-US stock, developed and emerging.
VNQ — Vanguard Real Estate ETF: US real-estate investment trusts (REITs) — property income that behaves a bit differently from stocks.
BND — Vanguard Total Bond Market ETF: A broad basket of investment-grade US bonds — the main stabilizer.

Backtest parameters

Allocation: 10% VV / 10% VTV / 10% VB / 10% VBR / 10% VXUS / 10% VNQ / 40% BND
Benchmark: S&P 500 (SPY)
Data: Monthly adjusted closing prices (dividends reinvested)
Period: Jun 1996 – Jul 2026 (history before an ETF's inception is extended with its older index/mutual-fund equivalent)
Rebalance: Yearly, at month-end
Transaction costs: None modelled

Advantages

Value and small-cap tilts: By deliberately overweighting cheaper and smaller companies, it targets factors that have historically added return over long periods.
Steady by design: A 40% bond anchor keeps drawdowns well below an all-stock portfolio, and the six equal stock slices spread single-market risk.

Disadvantages and risks

Seven funds to rebalance: More slices means more maintenance and more temptation to fiddle.
The tilts can underperform for years: Value, small-cap, international, and REITs all lagged US large-caps for much of the past 15 years, so the extra complexity didn't pay off over that window.

Try it yourself

Every number on this page is reproduced by MarketHeist's free portfolio tool — change the weights, tickers, or rebalancing and watch the result update.

Open the Coffeehouse portfolio in the live tool →

Frequently asked questions

What is the Coffeehouse portfolio?: Six equal 10% stock slices (large, large value, small, small value, international, REITs) plus a 40% total-bond anchor, rebalanced yearly — from Bill Schultheis's book The Coffeehouse Investor.
Is the Coffeehouse portfolio good?: It is a thoughtfully diversified, tilt-toward-value portfolio with a calm ride. Whether the tilts help depends on the era — they have long stretches of both leading and lagging.
Why so many stock slices?: Each slice targets a different part of the market (size, value, geography, real estate), spreading risk and tilting toward factors linked to higher long-run returns.

References

Educational analysis of historical data, not investment advice. Past performance does not guarantee future results. Backtested results are hypothetical and computed from the MarketHeist portfolio engine on the parameters above.