First, I want to highlight the Coffeehouse returns of 2010, listed here.  Our simple 60/40 stock/bond portfolio generated a total return of 14.68% over the recently completed calendar year. 

Even though that number is impressive in itself, when I review the Coffeehouse numbers over longer periods, a few other numbers have caught my attention.  First, the 20 year annualized return number of 9.1% is most remarkable, though unlikely to be duplicated in future returns with rates on bonds at these low levels. 

The number that is most striking is the 3-year annualized return of 3.24%.  This means that an investor with a 60/40 Coffeehouse-type portfolio would have endured the worst bear market in 75 years, and three years later still have generated a positive return of over 3%.   

This is just one more example of the many benefits of owning a diversified portfolio beyond blue chip stocks of the S&P 500 index.  During this same 3-year period, the popular index showed a – 2.9% return, which means that at the end of the 3-year period, the Coffeehouse portfolio was worth 20% more! 

I want to start off this 2nd day of January by sharing with you my vision since 1993; that every investor who is responsible for saving and investing for his or her own retirement has a basic understanding of the three Coffeehouse principles

Over the past 16 years I have never spent much time trying to convince anyone that the Coffeehouse approach to investing, of capturing the entire return of each asset class, is better than Wall Street’s approach of trying to “beat” the market. 

I have always felt if our philosophy was shared in a clear and simple manner, most intelligent investors could make that decision on their own. 

On one hand, Wall Street is caving in to the Coffeehouse approach of low cost index funds by littering the investment landscape with a particular type of index funds – sector based Exchange Traded Funds, more commonly known as ETFs.  These narrowly defined funds, traded on major exchanges, are now used by the financial industry and many investors as “trading vehicles” to beat the market, as pointed out in this timely piece written in today’s The New York Times.   

As a result of the enormous growth of these sector-based ETFs, the task of presenting the Coffeehouse approach to investors is more challenging than ever before! 

Working together, we can have a positive impact on the lives of investors in coming years, by offering clarity and wisdom in building wealth, ignoring Wall Street, and getting on with their lives.

Join me in a new year’s resolution of sharing The Coffeehouse Investor philosophy with others. 

Happy New Year to you!