Description of Dr. Bernstein's No Brainer Portfolio

Dr. William Bernstein is a physician and neurologist as well as a financial adviser to high net worth individuals. This one's so simple: Allocate 25% in each of four index funds diversified across basic categories.

The no-brainer portfolio comprises the following fund allocation:

25% in Vanguard 500 Index VFINX (NYSEARCA:IVW)

25% in Vanguard Small Cap NAESX or VTMSX (NYSEARCA:VB)

25% in Vanguard Total International VGTSX or VTMGX (EFA, VEA)

25% in Vanguard Total Bond VBMFX or VBISX (NASDAQ:BND)

Statistics of Dr. Bernstein's No Brainer Portfolio (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Which means for our asset as example:
  • Looking at the total return of 33.6% in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (68.2%)
  • Compared with SPY (47.7%) in the period of the last 3 years, the total return, or performance of 30.3% is lower, thus worse.

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:
  • Compared with the benchmark SPY (11%) in the period of the last 5 years, the annual performance (CAGR) of 6% of Dr. Bernstein's No Brainer Portfolio is smaller, thus worse.
  • Compared with SPY (13.9%) in the period of the last 3 years, the annual return (CAGR) of 9.2% is lower, thus worse.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Which means for our asset as example:
  • Compared with the benchmark SPY (13.2%) in the period of the last 5 years, the 30 days standard deviation of 9.7% of Dr. Bernstein's No Brainer Portfolio is lower, thus better.
  • Compared with SPY (12.4%) in the period of the last 3 years, the volatility of 9.2% is smaller, thus better.

DownVol:

'Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Using this definition on our asset we see for example:
  • Looking at the downside deviation of 10.6% in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.6%)
  • Compared with SPY (14%) in the period of the last 3 years, the downside risk of 10.4% is lower, thus better.

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Applying this definition to our asset in some examples:
  • The ratio of return and volatility (Sharpe) over 5 years of Dr. Bernstein's No Brainer Portfolio is 0.36, which is lower, thus worse compared to the benchmark SPY (0.64) in the same period.
  • Compared with SPY (0.92) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.73 is lower, thus worse.

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:
  • Looking at the ratio of annual return and downside deviation of 0.33 in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.58)
  • Looking at ratio of annual return and downside deviation in of 0.65 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.81).

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:
  • The Ulcer Index over 5 years of Dr. Bernstein's No Brainer Portfolio is 4.17 , which is greater, thus better compared to the benchmark SPY (3.95 ) in the same period.
  • Compared with SPY (4 ) in the period of the last 3 years, the Ulcer Index of 3.46 is smaller, thus worse.

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Using this definition on our asset we see for example:
  • Looking at the maximum reduction from previous high of -15.3 days in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively greater, thus better in comparison to the benchmark SPY (-19.3 days)
  • During the last 3 years, the maximum reduction from previous high is -15.3 days, which is greater, thus better than the value of -19.3 days from the benchmark.

MaxDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs) in days.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days under water of 316 days of Dr. Bernstein's No Brainer Portfolio is larger, thus worse.
  • During the last 3 years, the maximum days below previous high is 146 days, which is greater, thus worse than the value of 131 days from the benchmark.

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (39 days) in the period of the last 5 years, the average days under water of 75 days of Dr. Bernstein's No Brainer Portfolio is greater, thus worse.
  • During the last 3 years, the average days below previous high is 38 days, which is greater, thus worse than the value of 33 days from the benchmark.

Performance of Dr. Bernstein's No Brainer Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Dr. Bernstein's No Brainer Portfolio
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Allocations

Returns of Dr. Bernstein's No Brainer Portfolio (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Dr. Bernstein's No Brainer Portfolio are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.