No-Brainers, Cowards, and Bernstein’s Many Insights


One of the most influential authors in modern financial theory is a man named Dr. William Bernstein.  His background is particularly unique, as one might be surprised to learn that his Doctor title was earned in medicine rather than finance.  I personally believe it’s precisely this outside perspective, intelligent but abstract, that uniquely prepared him to explore portfolio theory in such interesting new directions.  I’ve long admired his work.

Regular readers will certainly recognize his name, as the Bernstein Portfolio has been a staple on the site since the beginning.  His writings on Efficient Frontiers are also an inspiration for the Portfolio Finder, and I’m sure he will continue to provoke new thought in the future.

While I’ve always taken great pride in spreading the word about the Bernstein Portfolio, the difficult thing about reducing his nuanced insight into a single portfolio is that it does not necessarily represent the full breadth of his ideas.  While a staunch advocate of simple, low-cost index investing, Dr. Bernstein is also a pioneer in factor investing that explores how different types of indices can work together to improve the risk-adjusted returns of a portfolio.  There’s more to his story than the simple Bernstein Portfolio.

So in the spirit of spreading the word about Dr. Bernstein and his work, I’ve added a new portfolio of his to the site — the Coward’s Portfolio.  And to eliminate any potential confusion, I’ve renamed the Bernstein Portfolio to its common name — the No-Brainer Portfolio.

To put things in proper context, one can think of the Coward’s portfolio as very similar to the No-Brainer portfolio but a level up in complexity.  Here’s the two side by side.

As you can see, both portfolios invest in large cap stocks, small cap stocks, international stocks, and short term treasuries.  The Coward’s portfolio simply subdivides the larger asset classes into discrete chunks.  It’s this broad selection if many different indices that gives it the “coward” moniker — it’s intended to indicate not a low risk tolerance on the part of the investor, but a neutral position to cover as many bases as possible.

Having two iterations of similar thought processes by the same financial theorist provides a nice opportunity to see just how much of a difference slicing and dicing assets can make.  So let’s compare them!


Offhand, the results are quite similar with a slight edge to the Coward’s portfolio in overall long-term return.  Enough to justify the extra complexity?  Let’s keep looking.



Here you can also see how the long-term CAGR of the Coward’s portfolio beat the No-Brainer by a few tenths of a percent.  But more notably, compare the worst year and worst decade.  Counter to the popular mantra that greater returns always require more risk, the Coward’s portfolio was also more consistent.  To put it in perspective, it matched the long-term CAGR of the Total US Stock Market over the same timeframe with 40% less volatility.  Not bad!

Of course, based on what we know about how safe withdrawal rates work, high returns with low volatility make a particularly big difference in retirement.



Yep — the Coward’s portfolio supported long-term safe and perpetual withdrawal rates a little bit higher than its No-Brainer cousin.  So while the overall returns look quite similar on the surface, the two portfolios do perform differently under the hood.

So does this mean that the Coward’s portfolio is clearly superior to the No-Brainer?  Not necessarily.  The thing the No-Brainer definitely has going for it is simplicity.  Being able to get most of the way to the results of a complex portfolio with five fewer funds is actually quite remarkable, and depending on your personal situation that simplicity may literally pay off when it comes time to rebalance and file your taxes.  There’s also something to be said for keeping it simple from an emotional perspective, and having four equally-weighted assets may help some people resist the urge to tinker.

When comparing portfolios on the site, the most similar alternative to the Coward’s Portfolio is actually not the No-Brainer but the Coffeehouse Portfolio.  With similar asset allocations and performances, it’s hard to go wrong with either option.  Rather than pick one over the other for example purposes, I like showing both interpretations together.  I personally find it interesting when two smart people look at the same problem and come to similar conclusions, and feel like there’s something to be learned from their shared insights.

There’s much more to the No-Brainer and Coward’s portfolios than this brief comparison can summarize, and I encourage everyone to explore their Portfolio pages and study the other charts as well.  Different people have different investing priorities, and both are great options.

As you go off to study the two options by William Bernstein, I’d like to also make one more recommendation.  An enterprising poster named Simplegift on the Bogleheads forum has put together a wonderful series of posts discussing Dr. Bernstein’s insights, and Bernstein himself joined in the conversation.  So don’t take it from me.  Learn from the source, and you’ll be a better investor for the effort.

UPDATE: The charts were updated on 9-28-2016 with up-to-date data and modified withdrawal terminology.