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Ready for a volatile 2005 market? 'Coffeehouse Portfolio' protects your retirement in bear or bull PAUL B. FARRELL
[size=[u]]Paul B. Farrell[/u]], CBS.MarketWatch.com Last Update: 8:51 PM ET Jan. 18, 2005
ARROYO GRANDE, Calif. (CBS.MW) --Okay, we don't know. Wall Street doesn't know. Bear or bull, nobody knows.
Yes, optimists hope we'll shoot past the high end of the predictions in Barron's "Big Money Poll" in 2005 and push the Dow to a new record above 11,722. But the bears are very pessimistic. Like money manager Jeremy Grantham warning the Dow could collapse to 6,500 in 2005.
Meanwhile, realists are factoring in scary stuff about a weak dollar, interest-rate hikes, a $600 billion trade deficit, trillions in new debt, escalating war, terrorist threats, homeland insecurity, the over-hyped privatization crisis and big pork-barrel spenders inside the Beltway.
But the truth is, it doesn't matter whether you're an optimist or pessimist, bull or bear or just a skeptical contrarian ... the huge gap between 11,722 and 6,500 is a flashing red danger signal: Warning, high risk and volatility for 2005!
You need to plan for a market with a split personality. You need a portfolio that'll grab growth on the upside but also protect you in a downside crash. We'll show you a portfolio that's got a proven track record in that arena; it beat the S&P 500 by a sizeable margin four of the past five years.
When everyone else was betting their lunch money and retirement money on tech and dot-coms back in the go-go days of 1999, Bill Schultheis, a former Salomon Smith Barney broker and the author of "The Coffeehouse Investor," launched his Coffeehouse Portfolio.
Back in 1999 Bill's Coffeehouse Portfolio was about as boring as a decaf latte in a triple-espresso world. Investors were riding the tech momentum up, up, and away. America expected annual returns of 100 percent or more. And more than a hundred funds delivered. Main Street and Wall Street were convinced we'd all retire rich and early!
In the irrational exuberance of the late nineties, brokers laughed at the quaint conservatism of Bill's Coffeehouse Portfolio. Imagine, a portfolio that "wasted" 40 percent of your asset allocation betting on low-return bond funds, when tech stocks were returning 100, 200, 300 percent! The Coffeehouse was a joke.
But the laughing stopped in the bear years of 2000-2002. The Coffeehouse Portfolio beat the S&P 500 by roughly 15 percentage points each of the three bear years. Meanwhile, several hundred dot-coms filed for bankruptcy. The Nasdaq dropped 80 percent. The stock market lost $8 trillion in market cap ... oh, you get the message.
'Laziest' is a winner
Folks, the Coffeehouse Portfolio was a winner back then and it's been a winner since. With no trading, no rebalancing, no change in asset allocations. No tinkering in the go-go days of 1999. Not in the 2000-2002 bear. Nor in the bull of the past couple years. One of the great "Lazy Portfolios" we've been tracking for years. See previous Paul B. Farrell for more on "lazy" portfolios.
So Bill's entitled to bragging rights for doing so well under hostile/friendly-fire: "Our simple portfolio has outperformed blue chip stocks in four out of the past five years [and] for the 10-year period ending December 31, 2004, a Coffeehouse Portfolio generated an annualized return of 10.80 percent." And even in 2004, its 13.8 percent return beat the S&P 500's 10.74 percent return.
But what's most impressive is the portfolio's bull/bear performance. In the five years between January 2000 and January 2005 the Coffeehouse Portfolio generated a positive 38 percent total return compared with a negative 13 percent total return for the S&P 500, a differential of 51 percentage points.
"Yes," says Bill, "you read it right; the recommendations offered up by Wall Street's best and brightest are still in the red compared to valuations of five years ago ... When it comes to building wealth, ignoring Wall Street and getting on with your life is a more sensible strategy" in retirement planning.
Coffeehouse winner for bull and bear markets
Here's how this ultra-simple seven-fund Coffeehouse Portfolio works. Put 40 percent in an intermediate-bond index fund, and 10 percent in each of six equity funds. That's it. Here's what it looks like with seven no-load Vanguard index funds (2004 returns follow the ticker symbols):
(40%) Total Bond Market Index (VBMFX: news, chart, profile) (4.23%)
(10%) Standard & Poor's 500 (VFINX: news, chart, profile) (10.74%)
(10%) Large-Cap Value Index (VIVAX: news, chart, profile) (15.29%)
(10%) Small-Cap Index (NAESX: news, chart, profile) (19.85%)
(10%) Small-Cap Value Index (VISVX: news, chart, profile) (23.55%)
(10%) Total International Stock Index (VGTSX: news, chart, profile) (20.84%)
(10%) REIT Index (VGSIX: news, chart, profile) (30.69%)
Set it and forget it! The asset allocation is that simple: You put 40 percent in the bond index and 10 percent in each of the six stock funds. Unfortunately too simple: Too many investors think they can outguess the pros and time the market successfully. Don't even try! That's a gambler's bet for the vast majority of investors.
Still skeptical? Okay, forget about the "Coffeehouse Portfolio!" Go ahead, risk your hard-earned retirement money. But don't say Bill didn't warn you about dealing with today's schizoid market that just might crash in 2005: "I am quite sure you will sit up and take notice the next time the market drops 30 percent at the same time you are knocking on retirement's door." Except then it may be too late.
Ready for a volatile 2005 market? 'Coffeehouse Portfolio' protects your retirement in bear or bull PAUL B. FARRELL
[size=[u]]Paul B. Farrell[/u]], CBS.MarketWatch.com Last Update: 8:51 PM ET Jan. 18, 2005
ARROYO GRANDE, Calif. (CBS.MW) --Okay, we don't know. Wall Street doesn't know. Bear or bull, nobody knows.
Yes, optimists hope we'll shoot past the high end of the predictions in Barron's "Big Money Poll" in 2005 and push the Dow to a new record above 11,722. But the bears are very pessimistic. Like money manager Jeremy Grantham warning the Dow could collapse to 6,500 in 2005.
Meanwhile, realists are factoring in scary stuff about a weak dollar, interest-rate hikes, a $600 billion trade deficit, trillions in new debt, escalating war, terrorist threats, homeland insecurity, the over-hyped privatization crisis and big pork-barrel spenders inside the Beltway.
But the truth is, it doesn't matter whether you're an optimist or pessimist, bull or bear or just a skeptical contrarian ... the huge gap between 11,722 and 6,500 is a flashing red danger signal: Warning, high risk and volatility for 2005!
You need to plan for a market with a split personality. You need a portfolio that'll grab growth on the upside but also protect you in a downside crash. We'll show you a portfolio that's got a proven track record in that arena; it beat the S&P 500 by a sizeable margin four of the past five years.
When everyone else was betting their lunch money and retirement money on tech and dot-coms back in the go-go days of 1999, Bill Schultheis, a former Salomon Smith Barney broker and the author of "The Coffeehouse Investor," launched his Coffeehouse Portfolio.
Back in 1999 Bill's Coffeehouse Portfolio was about as boring as a decaf latte in a triple-espresso world. Investors were riding the tech momentum up, up, and away. America expected annual returns of 100 percent or more. And more than a hundred funds delivered. Main Street and Wall Street were convinced we'd all retire rich and early!
In the irrational exuberance of the late nineties, brokers laughed at the quaint conservatism of Bill's Coffeehouse Portfolio. Imagine, a portfolio that "wasted" 40 percent of your asset allocation betting on low-return bond funds, when tech stocks were returning 100, 200, 300 percent! The Coffeehouse was a joke.
But the laughing stopped in the bear years of 2000-2002. The Coffeehouse Portfolio beat the S&P 500 by roughly 15 percentage points each of the three bear years. Meanwhile, several hundred dot-coms filed for bankruptcy. The Nasdaq dropped 80 percent. The stock market lost $8 trillion in market cap ... oh, you get the message.
'Laziest' is a winner
Folks, the Coffeehouse Portfolio was a winner back then and it's been a winner since. With no trading, no rebalancing, no change in asset allocations. No tinkering in the go-go days of 1999. Not in the 2000-2002 bear. Nor in the bull of the past couple years. One of the great "Lazy Portfolios" we've been tracking for years. See previous Paul B. Farrell for more on "lazy" portfolios.
So Bill's entitled to bragging rights for doing so well under hostile/friendly-fire: "Our simple portfolio has outperformed blue chip stocks in four out of the past five years [and] for the 10-year period ending December 31, 2004, a Coffeehouse Portfolio generated an annualized return of 10.80 percent." And even in 2004, its 13.8 percent return beat the S&P 500's 10.74 percent return.
But what's most impressive is the portfolio's bull/bear performance. In the five years between January 2000 and January 2005 the Coffeehouse Portfolio generated a positive 38 percent total return compared with a negative 13 percent total return for the S&P 500, a differential of 51 percentage points.
"Yes," says Bill, "you read it right; the recommendations offered up by Wall Street's best and brightest are still in the red compared to valuations of five years ago ... When it comes to building wealth, ignoring Wall Street and getting on with your life is a more sensible strategy" in retirement planning.
Coffeehouse winner for bull and bear markets
Here's how this ultra-simple seven-fund Coffeehouse Portfolio works. Put 40 percent in an intermediate-bond index fund, and 10 percent in each of six equity funds. That's it. Here's what it looks like with seven no-load Vanguard index funds (2004 returns follow the ticker symbols):
(40%) Total Bond Market Index (VBMFX: news, chart, profile) (4.23%)
(10%) Standard & Poor's 500 (VFINX: news, chart, profile) (10.74%)
(10%) Large-Cap Value Index (VIVAX: news, chart, profile) (15.29%)
(10%) Small-Cap Index (NAESX: news, chart, profile) (19.85%)
(10%) Small-Cap Value Index (VISVX: news, chart, profile) (23.55%)
(10%) Total International Stock Index (VGTSX: news, chart, profile) (20.84%)
(10%) REIT Index (VGSIX: news, chart, profile) (30.69%)
Set it and forget it! The asset allocation is that simple: You put 40 percent in the bond index and 10 percent in each of the six stock funds. Unfortunately too simple: Too many investors think they can outguess the pros and time the market successfully. Don't even try! That's a gambler's bet for the vast majority of investors.
Still skeptical? Okay, forget about the "Coffeehouse Portfolio!" Go ahead, risk your hard-earned retirement money. But don't say Bill didn't warn you about dealing with today's schizoid market that just might crash in 2005: "I am quite sure you will sit up and take notice the next time the market drops 30 percent at the same time you are knocking on retirement's door." Except then it may be too late.
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