William Bernstein, investment manager and author, first introduced a version of his “Coward’s portfolio” in 1996.
The “coward” refers not to the investor’s risk tolerance but to the strategy of hedging one’s bets and having slices of a number of asset classes.
An indexed 60% equity/ 40% fixed income Coward’s portfolio would consist of the following asset classes:
- US large blend: 15%
- US large value: 10%
- US small blend : 5%
- US small value: 10%
- US REIT: 5%
- European equity: 5%
- Pacific region equity: 5%
- Emerging markets equity: 5%
- US short-term bond: 40%
In 2015 the Coward’s portfolio produced the following returns:
| Year | Return |
|---|---|
| 2015 | -0.82% |
Note that the portfolio has a value tilt to US equity, providing an even split between US blend and US value funds (20%/20%). The US REIT and regional international allocations are all set at equal 5% slices of the portfolio.
The chart below (click image to enlarge) illustrates the 60/40 allocation.
Bernstein’s Cowards Portfolio 60/40 allocation
Returns
Vanguard offered index funds for the Coward’s portfolio’s suggested asset classes from 1999 onward. The following tables give return data using Vanguard investor share index funds. Larger portfolios can use lower cost admiral shares index funds. Exchange-traded fund shares may also be used for potentially lower costs. The returns period covers portfolio performance during the two bear markets in the 2000 -2010 decade, as well as subsequent recoveries. Keep in mind that past performance does not forecast future performance.
| Fund | Ticker | Allocation | Expense ratio |
|---|---|---|---|
| S&P 500 Index | VFINX | 15% | 0.15% |
| Value Index | VIVAX | 10% | 0.21% |
| Small cap Index | NAESX | 5% | 0.21% |
| Small value Index | VISVX | 10% | 0.20% |
| REIT Index | VGSIX | 5% | 0.26% |
| Europe Index | VEURX | 5% | 0.26% |
| Pacific Index | VPACX | 5% | 0.26% |
| Emerging markets Index | VEIEX | 5% | 0.33% |
| Short-term Investment Grade | VFSTX | 40% | 0.20% |
Annual returns
| Year | Portfolio |
|---|---|
| 2015 | -0.82% |
| 2014 | 6.40% |
| 2013 | 15.98% |
| 2012 | 12.06% |
| 2011 | -1.18% |
| 2010 | 13.01% |
| 2009 | 24.32% |
| 2008 | -24.55% |
| 2007 | 4.56% |
| 2006 | 14.76% |
| 2005 | 7.07% |
| 2004 | 12.16% |
| 2003 | 23.70% |
| 2002 | -4.00% |
| 2001 | 1.72% |
| 2000 | 2.82% |
| 1999 | 13.79% |
Compound returns
| Period | Return | Standard deviation |
|---|---|---|
| 3yr CAGR | 6.97% | 8.43% |
| 5yr CAGR | 6.27% | 7.64% |
| 10yr CAGR | 5.60% | 13.46% |
| 15yr CAGR | 6.30% | 12.21% |
See William Bernstein’s Coward’s Portfolio, google drive spreadsheet, for computations.
Barry Barnitz, an administrator of the John C. Bogle Center for Financial Literacy site.
