The New Coffeehouse Investor Book Review

The New Coffeehouse Investor by Bill Schultheis

This is the book for investors that don’t want to or can’t spare a lot of time and effort investing. The New Coffeehouse Investor’s theme is a simple threefold approach:

  1. Don’t put all your eggs in one basket (asset allocation)
  2. There are no free lunches (approximate the stock market average)
  3. Save for a rainy day (save)

Let’s tackle the three basic principles one at a time starting with asset allocation.  The basic premise is to divide your savings into 3 buckets (cash, stocks, and bonds) thereby lowering your risk  Over a long period stocks have historically done better so start with a larger percentage in stocks.  Bonds on the other hand are less volatile and they don’t usually move in the same direction. In practive the two tend to counter balance each other.  Therefore when you are young should should place a larger percentage in stocks when you can afford the additional risk.   As you grow older you should increase your bond  percentage because you are depending on a steady, predictable income from your retirement nest egg.  For someone my age (65) the author recommends:

  • Conservative investor
    • Cash 10%
    • Bonds 70%
    • Stocks 20%
  • Aggressive investor
    • Cash 10%
    • Bonds 30%
    • Stocks 60%

The second rule is to approximate the stock market average.  The premise here is that most of us are not going to be able to pick stocks and make money.  The “efficient market” theory states something similar to “The market has already taken into account breaking information before you even know about it.” Therefore, unless you spend more time than you have studying the market the market is smarter than you and any advantage you discover it has already been taken into account.  Therefore we should invest in stock market index funds that cover the entire stock market or a large sector of the stock market.  Instead of just picking one fund the author recommends allocating to the following types if you are lucky enough to have a robust 401K with lots of choices:

  • large-company,
  • large-company value,
  • small-company,
  • small-company value,
  • international, and
  • REITS.

An aggressive portfolio might be large company 40%, small company 25%, and International 35%.

Of course unless you save money you have no money to invest. That is why “save” is the third principle the author covers in this book.  For you young people start saving early in your life so you can reap the magic of compounding.  For people my age it is too late now for that kind of magic.

The last major section of the book covers living a long time after you retire and not running out of money by keeping your burn rate low.

One liners of other themes in the book:

♥ Eliminate the risks you can control and reduce the risks you can’t.

♥ There are two types of investment risk: Inflation and Marker Volatility.

♥ Past performance is not a good indicator of how a stock or mutual fund will perform in the future. Don’t pick funds based on past history because more often than not they will return to the norm and under perform after you buy into them.

♥ The less you pay in expenses and taxes, the better off you are.

♥ Most of us don’t need a financial adviser.  Most of the time they do no better than you can.  How hard is it to pick an index fund anyway.  Many of them are more interested in the commission they receive for selling you the stocks, funds, or whatever.  After all they want to retire too! (Okay, so this is not a one liner)

Summary: The bottom line to this book is for 99% of us the best thing we can do is go pick s0me Vanguard (they typically have very low expense ratios), save as much as you can, and check/re-balance your asset allocation at least once a year.  And, almost forgot, after you retire keep your burn rate no higher than 4%.


Schultheis, Bill (2009-04-02). The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life (Kindle Location 1061). Penguin Group. Kindle Edition.


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