coffeehouse investor

The Coffeehouse Investor: It’s Simplicity is Appealing

Bill Schultheis wrote “The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life” in 1998, after working for Smith Barney, a Wall Street Brokerage, in Seattle for 11 years. The book presents a simple and intelligent investing portfolio strategy.

Purpose of the Book

In Bill Schultheis’ own words,

“I felt there was an enormous opportunity to share an investment philosophy that was starting to capture the attention of investors – that the smart way to invest in the stock market was through low-cost index funds.”

The benefit of his method was to focus on what you can control and not the stock market. Although interesting to observe every day, an investor cannot control the daily fluctuations seen in the stock market. Often this causes excessive worry and poor emotionally-drive decisions. By simplifying your investments, you can achieve better returns. This causes less worry and lets people spend more time with their family and friends.

If you are new to investing for retirement, this brief book is a definite must read.


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The book is short, at less than 200 pages. It contains 12 concise chapters, a preface, an epilogue, and an appendix. Also, it includes a suggested reading list.

The book begins with an introductory story in the preface and the rationale for becoming a Coffeehouse Investor. Chapter 1 provides the reasons to become a Coffeehouse Investor. 

In the following chapters, the text covers risk, meeting stock market averages, building a stock portfolio and diversification, savings, fees, failures, spending your money, index funds, and the journey.

The whole thing sounds boring, but the chapters are elegantly titled, and Bill Schultheis makes it interesting with analogies and stories. Moreover, it is an easy-to-read guide to becoming a Coffeehouse Investor, creating a retirement portfolio requiring only periodic maintenance. The approach can also be used for taxable portfolios.

Below we will examine a few essential points from the Coffeehouse Investor book.

Three Lifelong Principles

Many people skip reading prefaces, but in this case, you should not. The preface starts with an exciting story about an early Coffeehouse Investor seminar.

However, the main point is about the three lifelong principles:

  • Don’t put all your eggs in one basket,
  • There is no such thing as a free lunch, and
  • Save for a rainy day.

There is more to each principle in the book.


Risk is probably the most crucial characteristic of investing. Unfortunately, only some investors understand it. Bill Schultheis makes it simple. From a mathematical perspective, risk is an equation describing volatility. It is often expressed as beta or standard deviation.

But from a real-life view, according to Bill Schultheis,

“Investment risk is the risk that the money you are counting on to purchase something important or sustain your lifestyle at some point in the future won’t be there when you need it.”

He divides risk into stock market risk and inflation risk. Stock market risk is volatility. Inflation risk is when day-to-day living costs increase faster than your income. This point is extremely applicable from 2022 to 2023 as the United States and the world experience a period of high inflation.

The book explains that Wall Street and investors often view stock market risk as more significant than inflation risk. This view may be accurate on a year-to-year basis. But Bill Schultheis presents an interesting perspective on a rolling 5-year and 10-year basis. Now, volatility and the risk of loss are lower, while inflation ris is greater.

I will leave it to you to read more about risk in the Coffeehouse Investor book.


As every investor in ETFs or mutual funds knows, fees subtract from returns. The costs are expressed as expense ratios. Higher the fees, the less the total return. This point is one of two main reasons index funds and ETFs have gained popularity.

The cost of fees is high and can detract from total returns, especially over a 20-year or 30-year period. The author presents several examples comparing a low-cost index fund with a higher-cost managed mutual fund. A few tenths of a percentage add up to tens of thousands to hundreds of thousands of dollars difference.

Bill Schultheis’ explanation is easy to follow and a must-read for every investor. The bottom line, though, is to keep your fees low.

Asset Allocation

Besides risk and fees, investors need to understand asset allocation and diversification. They two are intertwined. In addition, asset allocation is likely the most critical portfolio strategy decision a future retiree makes. Pick a too aggressive portfolio, and there may not be enough for retirement when you want it.

Bill Schultheis discusses in detail the Coffeehouse Portfolio. It is a variation of the 60% stock / 40% bond portfolio. But it splits the stock portion into six equally weighted asset classes. The allocation includes a large-cap fund, a large-cap value fund, a small-cap fund, a small-cap value fund, an international stock fund (ex-US), and a real estate investment trust (REIT) fund. The bond portion is a bond index fund.

The author explains it well in his book, and we also write about it in detail in our Coffeehouse Portfolio article.

Bottom Line

The Coffeehouse Investor is an excellent book for beginners and even those with more experience. The book presents common sense ideas today but was groundbreaking in 1998. At the time, only John Bogle wrote books and discussed similar concepts.

Investors should remember that over time the combination of low costs, receiving the return of the stock market average, and asset allocation has performed well for mutual funds. It seems counterintuitive, but beating the market over long stretches is challenging, especially when combined with high expense ratios of many actively managed funds.

Bill Schultheis has followed the first book with a second one in 2021 called “The Coffeehouse Investor’s Ground Rules: Save, Invest, and Plan for a Life of Wealth and Happiness. It is another short volume that is easy to read. This text emphasizes three ground rules for the pursuit of wealth and happiness.

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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