Financially reviewed by Patrick Flood, CFA.
The Bernstein No Brainer Portfolio may indeed be a no brainer. Here we’ll check out its components, historical performance, and the best ETF’s to use for it.
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Who is William Bernstein?
William (Bill) Bernstein is a retired neurologist, financial theorist, and prolific investing author. Like the other voices of wisdom in the investing world, Bernstein maintains that index investing is superior to stock picking, and that asset allocation is far more important than the selection of those assets or timing the buying and selling thereof. He delineates the details and reasoning behind this approach in his first book, The Intelligent Asset Allocator.
Bernstein is one of the most prolific investing authors. Math/theory nerds like me and armchair investors alike will enjoy and get something from all of his investing-related books:
- The Intelligent Asset Allocator
- If You Can: How Millennials Can Get Rich Slowly
- The Four Pillars of Investing: Lessons for Building a Winning Portfolio
- The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between
- Rational Expectations: Asset Allocation for Investing Adults
What is the Bernstein No Brainer Portfolio?
As the name suggests, the No Brainer Portfolio was created by Bill Bernstein. It is considered a “lazy portfolio,” being easy to implement and manage. This is arguably the simplest of all the portfolios Bernstein has created; no special asset classes here, and Bernstein admits he is an “asset class junkie.”
The Bernstein No Brainer portfolio is a diversified blend of 4 equally-weighted asset classes:
- 25% US Large Cap Blend
- 25% US Small Cap Blend
- 25% International Stocks
- 25% Short-Term Bonds
Granted, you can get more nuanced with Bernstein’s other portfolios, but I’m not a huge fan of short-term bonds being the only bond holding, and I’m also not big on the inclusion of small-cap growth stocks, which have been shown to not pay a risk premium like small-cap value stocks. I would argue a young investor should likely be using long-term treasuries at a small allocation, using intermediate-term treasuries later in their horizon, and deploying short-term bonds at or near retirement.
That said, this portfolio is indeed simple and “lazy,” which is the whole purpose. It would be suitable to hold over one’s entire investment horizon.
Bernstein No Brainer Portfolio Performance Backtest
Going back to 1986, here’s a comparison of the Bernstein No Brainer Portfolio and the S&P 500 through 2019:
Looks pretty dismal, with the S&P 500 still achieving a greater risk-adjusted return as measured by Sharpe Ratio. These results are about what we would expect though. Short-term treasury bonds didn’t provide as much downside protection through market turmoil – most notably the 2008 financial crisis – as intermediate-term or long-term treasury bonds would have. Short-term bonds are considered a cash equivalent.
Moreover, both small-cap US and international stocks have suffered in recent years. I do like that the No Brainer Portfolio is one of the few lazy portfolios that inherently incorporates ex-US stocks.
Bernstein No Brainer Portfolio ETF Pie for M1 Finance
M1 Finance is a great choice of broker to implement the Bernstein No Brainer Portfolio because it makes regular rebalancing seamless and easy with one click, has zero transaction fees, and incorporates dynamic rebalancing for new deposits. I wrote a comprehensive review of M1 Finance here.
- VOO – 25%
- VB – 25%
- VXUS – 25%
- VGSH – 25%
Disclosures: I am long VOO in my own portfolio.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.