As 2010 winds down, it looks like it is going to be another good year for The Coffeehouse Investor portfolio.  This 7-fund portfolio consist of 10 percent each allocated to large cap, value, small cap, small value, international & REIT index fund, and 40% allocated to an intermediate term bond index fund. 

I created this portfolio in 1999, when I wrote the first edition of The Coffeehouse Investor.  Since then, the portfolio has gained quite a bit of notoriety in national media outlets, including The New York Times, The Wall Street Journal, and TIME magazine, and is frequently highlighted by columnist Paul Farrell on CBSmarketwatch.com. 

As much as this simple 60/40 portfolio has served investors well over the past ten years, there are a few misconceptions that I want to clear up regarding its construction, and how to best integrate it into your life.

First, the 60/40 stock/bond allocation isn’t for everyone. It is quite possible that your allocation to stocks will be significantly higher (or lower) than the Coffeehouse portfolio.  For instance, if you are a recent college graduate starting to invest in your company’s 401k plan, it probably makes more sense to be more heavily weighted in common stocks, not only because you have a fairly long investment time horizon, but the alternative (bonds, money market, etc.) are likely to generate returns far less than equities over your lifespan of investing. 

On the other side of the spectrum, for investors who are getting ready to retire or are already retired, I have found that a 60/40 allocation is generally too aggressive, in that the capital lost during the next bear market will likely be too great to absorb, and so a more conservative allocation is warranted.   

Of course the only way to determine a good allocation for yourself is to run some assumptions, or “stress tests” with your portfolio when you review your financial plan each year. 

Another misconception regarding The Coffeehouse Investor portfolio is regarding the actual makeup of the funds within the portfolio.  I am frequently asked why I chose the allocation I did, why it is important, why I did or didn’t include certain asset classes – for instance, why did I leave out gold, commodities, emerging markets, etc. 

Looking back, it would have been easy to say I should have included these asset classes, because they have had quite a run over the past decade.  In the end, the makeup of asset classes in your portfolio isn’t nearly as important as “sticking with” the asset classes you choose, and not chasing the hot asset class of the moment.  Whether I have 20,30, or 40 percent in International, or whether I have 5 percent in gold, isn’t NEARLY as important as creating  financial plan, and then working toward a saving/spending goal that allows me a chance to reach my short and long term financial goals. 

We have lots of exciting things in store for the Coffeehouse in 2011, so stay tuned. I hope you are having a fun and relaxing holiday season with your family and friends.


By Lori Brillhart

Financial New Year’s Resolutions…

If mastering your finances is a top priority for you in the upcoming year, here are some simple steps to help you achieve your goals. While your financial life may be an area you have ignored or neglected, now is a perfect time to get back on track. Don’t wait another day-one simple step may be all that is needed to reach your goals.

The single most important step to take is to determine your burn rate. Purchase a notebook, use a software program or online tool, or a simple spreadsheet, to track all of your expenditures for the next month. Use a tool that is easy and one that will enable you to record each and every penny spent. This is the most challenging task, but the most worthwhile, as it will allow you to truly see where all of those extra dollars are going, and where you may be able to cut back.

Next, establish a plan to get out of debt-or significantly reduce it. Being debt ridden causes people all kinds of emotional stress. Once you resolve to reduce your debt, you will feel empowered to take additional steps that will help you realize your financial objectives.

While this may seem a bit obvious, an often overlooked step is to spend less than you earn. Have you ever gone on a diet or started a fitness program, and worked really hard to lose those extra pounds? Once you reached your desired weight, did you find that what you lost found you once again? The same can happen with your debt. If you have been in debt before, understand that this step is not a temporary action-this is a lifestyle change.

Now that you have paid off your debt and you know where you can save some money, establish an emergency fund. What you had been paying in interest on your credit cards, car loans or student loans, you can save in your emergency fund. Life happens-cars and roofs need to be repaired, medical issues may arise, and you don’t want to have to dip into your retirement fund for the many emergencies that may occur along the way. Ideally, save up to six months of your expenses in your emergency fund.

Start a retirement plan. If you already have a retirement plan in place, increase the amount you save. You may be surprised to know that millions of people who could start a retirement plan at their workplace, elect to forego this benefit. While some employers do not contribute to the plan, many still participate. If your company or organization matches a part of your retirement plan, find a way to contribute so you can take advantage of the benefit they are providing. In essence, this is free retirement money!

After you have maximized your retirement plan, start an opportunity fund. While life provides plenty of challenges-to be sure-life also provides plenty of opportunities. These opportunities typically have a cost associated with them. What happens when a friend or family member asks you to accompany them on a trip of a lifetime? Or your dream home, or second home is listed for sale? Or a business opportunity becomes available? Will you have the funds available to realize your dreams, or will you still be stuck trying to determine how to track your burn rate? Remember, the steps above are all things that you can control.

There is no time like the present to start. Strive for improvement, not perfection.

I wish you a happy, healthy and prosperous 2011!

What is your primary financial objective for 2011? We want to know!

Reality is setting in for many last minute shoppers. I, for one, have yet to purchase anything other than stocking stuffers and small tokens of appreciation for friends, neighbors and coworkers. Typically, I would have been done with my Christmas shopping by December 1st, and would have had plenty of time for all of the things I truly enjoy about the holidays: getting together with friends and loved ones, ice-skating with my son, watching the Christmas ships pass in the night, and watching traditional Christmas shows that I’ve been watching since I was a kid. However, this year it seems as if I am constantly trying to catch up with myself, so I will feel fortunate to have a few gifts wrapped under the tree by Christmas Eve.

My informal survey of friends and coworkers indicates a continuing trend that people are longing for simple holidays with less emphasis on the commercialism of the holiday season and more emphasis on family, food and fun. One of my coworkers shared with me that her family has not exchanged gifts for several years. They get together for a wonderful meal, board games and meaningful conversation. She never feels stressed or overwhelmed because she contributes something special to the meal, which is her gift to her family.

While I admire her family tradition, this year I have learned something about myself. I actually enjoy shopping for loved ones. Therefore, I am attempting to find a middle place where I purchase just a few meaningful-and long-lasting-treasures for my family. Other than one very special gift for my son, the rest of the gifts will be books and music. And maybe, just maybe, a new board game to enjoy on Christmas Day.

If you are still searching for the perfect gift for someone in your family, why not purchase a book that will enable him or her to learn a new skill? Why not give a gift that will allow them to live better year after year, such as a book about investing? In fact, the perfect gift just might be one of the books on the “best investment books list” from the Bogleheads Forum-a site dedicated to financial planning, investing and consumer issues. Note the book, The New Coffeehouse Investor, written by my humble boss, Bill Schultheis, is on the list.

I’ve already had many friends order books for their college age kids and spouses. It  just might be one of the best gifts you’ll ever give. In fact, it may be one of those special gifts that keeps on “paying dividends” well into the future.

Happy gifting!

I’d like to discuss the problem of financial stress during the holidays-the elephant in the room that few people like to discuss at parties. Financial challenges contribute to added stress for many couples, families, and individuals throughout the year. The holiday season tends to cause greater financial stress due to increased spending for gifts and entertaining.

Many individuals, couples and families struggle with money decisions all year long. During the holidays, issues such as: How much do I (or we) spend? How do we purchase gifts for everyone on our list on a budget? Who makes the final decision? Whose “vision” of the holiday season are we trying to emulate? Do we need a tree with designer ornaments, and indoor and outdoor lights? Do we feel internal pressure to host parties and the family feast? 

Financial concerns certainly occur when a job loss, business downturn or other financial emergency takes place. But barring an extreme situation, it is better to have a system in place than to allow yourself to get carried away by the myriad temptations that the holiday season provides.

Make it a point to handle this issue, with yourself, your spouse, or your family! In fact, if you have older kids, this may be a perfect time to introduce basic financial planning concepts such as budgeting, how to manage credit wisely, and how to save money. 

Ideas to have a simpler, more relaxing (and fun) holiday season:

1. Get together with friends and neighbors to bake cookies, and share.

2. Give homemade goodies to friends, neighbors and coworkers. Edible gifts-especially those that are special family recipes-are often appreciated.

3. Collaborate with kids to make candy or homemade breads for teachers, coaches and other special people.

4. Rather than purchasing gifts for everyone, draw one family member’s name, per person, and purchase one very special gift. 

5. Purchase a smaller tree, and trim the tree and decorate your home in an evening instead of a weekend.

6. Make a CD for all of your friends. They’ll be able to enjoy the music all year long.

7. Offer a gift of a service. Most everyone would be delighted with a gift of pet-sitting, baby-sitting, meal preparation, or other service. 

8. Host a BYOB and favorite appetizer, and simply enjoy the company around you.

9. Gather several family members, or friends, and have a “giving party.” Donate your time to a local charitable organization, and celebrate after the work is done.

10. Go to a nursing home or  children’s hospital and read a favorite holiday story. Offer to go grocery shopping or run errands for a shut-in. Host a family or neighborhood game night. The list is limitless; just use your imagination.

If you have any creative ways to reduce financial stress during the holidays, we’d love to hear from you!

Back in 1993, when I first started putting together ideas for The Coffeehouse Investor, I spent hours at the local library scouring periodical databases for papers written either in support of, or opposing the Coffeehouse investment philosophy. 

I remember coming across one article in particular, written by Jane Bryant Quinn in NEWSWEEK magazine, which detailed the wisdom of owning a diversified portfolio of low cost index funds instead of trying to beat the market through a selection of actively managed mutual funds or individual stocks. 

That one article, as much as anything at that time, confirmed the journey I was on, and was the impetus for putting together a book proposal for major publishing companies. 

Over the years, I have made a habit of quickly glancing through a wide number of periodicals in search of articles that address our investment approach to building wealth.  Sometimes I file them away to be used at a later time, sometimes I send the articles, along with a note, to a client or friend of mine, and sometimes I post them on the Coffeehouse blog, to keep you posted on what is being written out there. 

Last Saturday this article appeared in The New York Times, and caught my attention in a special way, and wanted to share it with you.  I was drawn to this article for several reasons, in part because I also worked as a bond salesman at a major Wall Street firm for the first 15 years of my career, but more importantly because Gordon Murray, who is dying of brain cancer, felt a need to create positive change and impact people’s lives by sharing with them an investment philosophy; the same one found at The Coffeehouse Investor. 

In the countless columns I have written over the years, in the many seminars I have presented, I always encourage those who believe in our philosophy to share it with others, and I encourage you to do the same.  Take a moment to forward this article to a friend, family member, or co-worker who is intent on building wealth, ignoring Wall Street, and getting on with their life.  Working together, you and I can have a profoundly positive impact on investors’ lives, by creating a sense of clarity on what is and isn’t important in building long term wealth.

Recently, I read an article about how to be a happier person. The essential component linked to happiness, as stated in the article, is to be free of desire. After pondering the article’s merits, I found myself rather uncomfortable with the premise. Many of you may not remember the song “You Can’t Always Get What You Want,” by the Rolling Stones. The lyrics include the following: “But if you try sometime, you just might find, you get what you need.” This message resonates with me because it seems that rather than having an absence of desire, we just might be happier desiring what we have. Thus began my quest to find out what others have to say about what they are thankful for this holiday season.

Kayleigh, age 14: “I’m thankful for my family, and that we’re all healthy and that we have a nice home in a nice neighborhood, and that we have everything that we need and most everything that we want. I love the holiday season because it’s a time when people are thinking about those less fortunate and how they can help them.”

Aidan, age 11: “I’m glad that there is snow already this year! And I’m thankful that I really like school and for my family, that I love so much.”

Michael, age 15: “I am thankful for being born in the United States, and having many opportunities that I would not otherwise have.”

Jerry, age 50:  “I am thankful for all of the goodness in my life.”

And from a neighbor: “I am thankful for my health, my friends, and my ability to enjoy the fruits of my labors.”

In my small sampling, it seems that the people I queried were basically happy with their plot in life. Absence of desire or happy with what they have? The bottom line is that there is a lot of good things that folks are thankful for this year.

Happy Thanksgiving to you all!

Snow atop Squak Mountain, in WA State

Less than one month ago, local temperatures were above average, and many area residents donning their sunglasses had little interest in fleece jackets, hats or gloves. Ah, but how quickly things can change! The meteorologists are predicting colder than average weather, with sub thirty-degree temperatures and snow showers for the next two days.

As luck would have it, another busy Seattle are Mom and I were able to get away, on Thursday, for a couple of hours, to hike Squak Mountain. On the way up the mountain, it rained–or, rather drizzled–until about two-thirds of the way up, when it started to snow. Giggling like children, and taking numerous photos, we scurried up to the top, and stopped to delight in the beauty of the first snowfall of the season.

Unfortunately, we couldn’t stay long because we were cold and wet. We hustled down the mountain and hastily made our way to the nearest hot beverage purveyor, and warmed our hands, and insides, with our lattes. Vowing to return with gloves and hats on our next adventure, we realized that we had been ill equipped to be completely comfortable.

In life, we can’t control everything. In fact, there are actually few things we can control. However, we can control how prepared we are to handle such things as a snowy day, or even a financial emergency. If you have an emergency savings cushion equal to six months of your expenses, you should be able to weather most “financial storms.” If something unexpected occurs in your life–be it a leaky roof, a car repair, or a health concern–you will be better equipped to make a sound decision, with a financial cushion.

The same holds true with the weather. Are you and your family prepared for the upcoming snow? What will happen if you, and local merchants, lose power? Do you have ample batteries for flashlights, blankets, and food for at least seven days? Will your pets have enough food?

Here are some tips to get you prepared for winter:

-Make sure your fireplace functions properly.

-Fill your gas tank before the snow starts falling.

-Have flares, a flashlight, sand, a shovel and warm clothes in your car.

-Keep a window ice scraper in your glove compartment.

-Use alternative heat methods safely. NEVER use a gas or charcoal grill, hibachi, or portable propane heater to cook indoors or heat your home.

-Have cash on hand. ATM machines may not be functional.

-Store at least one gallon of water, per person, for at least three days.

Rather than being anxious about the possibility of something happening, why not take as many precautionary measures as possible. Life happens. The question is: are you prepared?

How do you prepare for the unexpected? We’d like to share your tips with the Coffeehouse community!

Having been fortunate enough to stay in contact with one of my favorite math teachers, I am still learning lessons from the teacher who is now my dear friend. Doris Oda started her teaching career in 1965, earning 4700.00 per year, with 200.00 annual increases.  After moving away from her family home and into an apartment of her own, Doris found it difficult to balance her income and expenses. Several years passed with Doris spending a little bit more than she earned, and increasing her debt load. However, she was able to pay her bills, and pay the credit card companies more than the minimum amount, so she thought she was doing fairly well. As she approached her thirtieth birthday, Doris decided that she would like to own a home of her own, and she learned that she would need to take control of her debt to be able to secure a mortgage. Armed with a new goal, and a course of action, Doris eliminated her debt, and was able to purchase a condo unit within two years.

While she was happy to have a place to call her own, it wasn’t long before Doris decided that she wanted to live closer to her place of work. Teaching in an upscale school district, Doris was unsure as to whether or not she would be able to purchase a home on her teaching salary. She faithfully saved her pay raises, and focused on her new objective. Within a few years, Doris saved enough for a down payment on a small home in a well established neighborhood, close to school. During the same period, Doris hired a financial adviser to assist her in her retirement planning.

Her financial adviser helped her to focus on her financial future, and help her retire early from her teaching  career. She was able to retire when she was fifty one years old! Today, Doris is having the time of her life. She exercises, walks her dog, plays bridge, belongs to a tennis club, travels, belongs to a book club and the Lion’s Club, and is a Mariners season ticket holder. Doris still works part-time-originally she worked to help defray her health insurance premiums, but she found that she really enjoys the camaraderie and connection to others.

When I asked Doris to share her tips for success, she smiled and offered the following:

Never use the ATM machine.

Don’t spend more than you earn.

Pay your bills in full, and on time.

Be sure that you don’t have easy access to your savings account; think about saving in a credit union.

Hire a financial adviser to help you.

She attributes her success to having a great work ethic, putting money away consistently, and having a plan. Money meant enjoying luxury items, in her early years. Today, money means security, and having the freedom of doing the things she wants to do, when she wants to do them. I hope Doris inspires you to take control of your finances, so that you, too, can enjoy more freedom and enjoyment!

Happy Wednesday!

Presents 03

An hour before the trick-or-treaters arrived on my doorstep, I witnessed employees at my local grocery store removing most of the Halloween items on display. Boxes upon boxes of holiday decorations and merchandise awaited their temporary destinations. Not more than a few years ago, the holiday season officially started the day after Thanksgiving. Now, we have “holiday season creep” that can start anywhere from early September to just after Halloween. While I enjoy the holiday season immensely, I have found that more is not necessarily better. In fact, the longer the holiday season is extended, the more challenges and temptations we face. Therefore I have devised a plan to maximize my (and my family’s) enjoyment of the holidays, while minimizing the cost.

Rule Number 1: Start a Holiday Savings Shopping Fund in January

Make a list of all of the people for whom you purchased gifts, this past month. Determine if the amount spent was adequate, too inexpensive, or too generous. Perhaps this is the time to determine if you have something you could make, yourself, that might be more meaningful. Take stock of your skills and talents and see if they can be put to use! It will be very difficult to wait until the last minute, if you plan to make something for a friend or family member. Also, don’t forget to include your holiday food budget in this account. Start a separate food account, if necessary.

Rule Number 2: Start a Holiday Fun Account in February

Does your family have a holiday tradition of attending the Nutcracker ballet, the Messiah, or a Santa Brunch, every year? Did you miss another occasion because you thought the activity wouldn’t fit your budget? You are much more likely to be able to manage the cost of an event if you plan ahead. Start today. You may only need to save ten or twenty dollars each month, to make your holidays a little bit more memorable, next year.

Rule Number 3: Start a Miscellaneous Fund in March

If you collect holiday music or decorations, attend parties (and need hostess gifts), or host a holiday party, a small fund will help you to have peace of mind, and not blow your budget. This fund can always be repurposed as a starter fund for the following year, if you do not use it, or only use a small portion of the fund.

Rule Number 4: Save for each account, every month, once you get the account started.

Rule Number 5: Revisit your savings plan mid-year, and make adjustments, if necessary.

Note: If you haven’t started a fund, to date, you can still find value in creating a budget for the next two months. Determine what your budget will be, write it down, and stick to your plan. Make a pact to start a savings plan in January, so that the holiday season will be easier on your budget, next year.

Rule Number 6: After Halloween, assess your fund balances, and make sure that you have enough money in your accounts. You’ll need time to order tickets for performances, and plan days to shop, bake, or plan parties.

Rule Number 7: Review websites for coupons and upcoming holiday sales.

Rule Number 8: Start shopping and balance your holiday accounts.

Rule Number 9: Take a deep breath, and pat yourself on the back for having taken the time to establish and follow a plan. Treat yourself to something small as a reward for your consistent efforts throughout the year.

Rule Number 10: Enjoy the season with your family and friends!

Happy Tuesday!

Saving money, reducing your monthly expenses, and learning about investments are all essential steps in becoming a good steward of your money. And, while extremely important, these are just the basics. People who live comfortable lives-and those who live the lives others wish for-didn’t get there by accident. They-often with the help of a financial adviser-created a financial plan, and followed it. It is rare that anyone has the means to indulge their every desire. Nearly everyone has to set priorities and make sound financial decisions-and a good plan helps you navigate your way through the process of making good decisions. People who have a sound financial plan-one that suits their specific needs-are able to live comfortably, without the guilt and worry of having enough money for the things they truly value.

If you don’t currently have a financial plan, you may wish to contact a friend or colleague who has one. Ask him or her how their plan is working and whether or not they found it useful to have a plan in place. Ask them if their financial plan has had a positive impact on their quality of life. Ask them for a reference for their favorite financial adviser, and then follow up with some research on the individual. If you choose to create a financial plan for yourself, make sure you commit to following a long-term plan; one that you review annually-at least- to allow for changes in your personal situation. Also, be sure to include SMART goals in your plan. Be sure that your goals are Specific, Measurable, Attainable, Realistic and Time Bound. Keep in mind that these goals need to be meaningful to you, and they need to be written down. 

Most importantly, don’t let money control you. You need to take control of your money!

Happy Wednesday!