Coffeehouse Investing
I first learned of coffee house investing through an article by Paul B. Farrell on CBS Marketwatch where he called it a Lazy Portfolio. The Lazy Portfolio was composed of four low-cost Vanguard index funds:
- Total Stock Market Index - 25%
- Small-Cap Stock Index - 25%
- European Stock Index - 25%
- Total Bond Market Index - 25%
Just keep the above allocation by rebalancing yearly. There you go, an easy to handle, lazy portfolio. I was impressed. Now, I can get back to living my life instead of picking stocks.
The ideas are expanded upon at http://www.coffeehouseinvestor.com/ and in several books. It is rather straightforward, since you basically aim to capture the market return by investing in the market with index funds. Wall Street is obsessed in trying to beat the market by picking the right combination of investment vehicles. Don't believe the hype of the marketing machine.
My Portfolio
My portfolio is an approximation from one of Paul's portfolio examples. I took liberties in investing a larger percentage in international funds, since I feel there is more growth to be found abroad (versus the domestic market).
- Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) - 40%
- Vanguard 500 Index Fund Investor Shares (VFINX) - 20%
- Vanguard Small-Cap Index Fund Investor Shares (NAESX) - 10%
- Vanguard REIT Index Fund Investor Shares (VGSIX) - 10%
- Vanguard Developed Markets Index Fund (VDMIX) - 10%
- Vanguard Emerging Markets Stock Index Fund (VEIEX) - 10%
Note that the core of this portfolio is a large allocation of stable bonds followed by a breadth of diversity. Some other points come to mind that should be followed:
- No market timing or frequent trading - higher costs and taxes
- Save regularly and often - at least ten percent of your income should be socked away
- diversification is key - bet on all the horses
- Rebalance your portfolio yearly to keep your target allocations
Good luck in investing.