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)

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (94.9%) in the period of the last 5 years, the total return of 45.4% of Dr. Bernstein's No Brainer Portfolio is lower, thus worse.
- Looking at total return in of 5% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (22.5%).

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:- Compared with the benchmark SPY (14.3%) in the period of the last 5 years, the annual performance (CAGR) of 7.8% of Dr. Bernstein's No Brainer Portfolio is lower, thus worse.
- Compared with SPY (7%) in the period of the last 3 years, the annual return (CAGR) of 1.6% is smaller, thus worse.

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Using this definition on our asset we see for example:- The volatility over 5 years of Dr. Bernstein's No Brainer Portfolio is 15.7%, which is smaller, thus better compared to the benchmark SPY (20.9%) in the same period.
- Looking at volatility in of 13.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (17.5%).

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Applying this definition to our asset in some examples:- Looking at the downside risk of 11.5% 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 (15%)
- Compared with SPY (12.3%) in the period of the last 3 years, the downside volatility of 9.6% is lower, thus better.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Which means for our asset as example:- Looking at the ratio of return and volatility (Sharpe) of 0.34 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 (0.56)
- Looking at risk / return profile (Sharpe) in of -0.06 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.26).

'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.'

Using this definition on our asset we see for example:- Looking at the downside risk / excess return profile of 0.46 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 (0.79)
- During the last 3 years, the downside risk / excess return profile is -0.09, which is lower, thus worse than the value of 0.37 from the benchmark.

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Applying this definition to our asset in some examples:- The Ulcer Index over 5 years of Dr. Bernstein's No Brainer Portfolio is 9.54 , which is larger, thus worse compared to the benchmark SPY (9.32 ) in the same period.
- During the last 3 years, the Downside risk index is 11 , which is higher, thus worse than the value of 10 from the benchmark.

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Which means for our asset as example:- The maximum drop from peak to valley over 5 years of Dr. Bernstein's No Brainer Portfolio is -28.2 days, which is greater, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Compared with SPY (-24.5 days) in the period of the last 3 years, the maximum DrawDown of -24.4 days is greater, thus better.

'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.'

Which means for our asset as example:- The maximum days below previous high over 5 years of Dr. Bernstein's No Brainer Portfolio is 582 days, which is larger, thus worse compared to the benchmark SPY (488 days) in the same period.
- Looking at maximum days below previous high in of 582 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (488 days).

'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:- The average time in days below previous high water mark over 5 years of Dr. Bernstein's No Brainer Portfolio is 163 days, which is larger, thus worse compared to the benchmark SPY (123 days) in the same period.
- Compared with SPY (179 days) in the period of the last 3 years, the average time in days below previous high water mark of 237 days is larger, thus worse.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Dr. Bernstein's No Brainer Portfolio are hypothetical and do not account for slippage, fees or taxes.
- Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.