Background and Philosophy
The William Bernstein “Cowards” Lazy Portfolio comes from Dr. William Bernstein — a neurologist, oddly enough, who ended up writing some of the most grounded stuff on investing you’ll find. Not a Wall Street guy. Just someone who looked at the data, thought carefully, and came to the conclusion that most investors are better off keeping things simple. Low-cost. Broadly diversified. And above all, patient.
His whole philosophy is kind of anti-fuss. No stock picking, no timing, no chasing heat. Just smart allocation using index funds — global exposure, a bit of value and small-cap tilt, some real estate for ballast, and a healthy amount of bonds. The “Smart Money” version reflects that view. It’s lazy with a little more thought behind the mix — meant for investors who want growth, yes, but with some cushion in bonds when things get rough.
This portfolio, unlike his other lazy portfolios, is more diversified among various subcategories of stocks. That’s why it was named as ‘cowards’ as it tends to be more diversified to reduce portfolio volatility.
It’s probably one of the more well-known lazy portfolios he’s put forward.
2. Asset Allocation Analysis
The portfolio is split into 60% equities and 40% fixed income, with the equity portion heavily diversified across geographies and market segments:
- U.S. Stocks (40% total): VTI (15%, broad market), VTV (10%, large-cap value), VB (5%, small-cap blend), VBR (10%, small-cap value). Value and small-cap tilts aim to capture historical risk premiums.
- International Stocks (15% total): VGK (5%, Europe), VPL (5%, Pacific), VWO (5%, emerging markets). Provides global diversification.
- REITs (5%): VNQ offers inflation-hedging real estate exposure.
- Short-Term Bonds (40%): BSV minimizes interest rate risk.
Key Advantages:
- Diversification: Covers domestic/international equities, value/small-cap factors, and bonds.
- Low-cost: All ETFs are index-based with low expense ratios.
- Risk-adjusted returns: The 40% bond allocation reduces volatility.
Potential Drawbacks:
- Lower growth potential: Conservative allocation may lag in bull markets.
- Complexity: 9 ETFs may require more rebalancing effort.
- No commodities: Lacks inflation protection beyond REITs.
3. Practical Application in Retirement Accounts
For 401(k) Plans:
Investors should map the portfolio to their plan’s available funds:
- U.S. Stocks: Look for “Total Market” (VTI equivalent), “S&P 500” (for VTV), or “Small-Cap Index” (for VB/VBR).
- International: Use “Developed Markets” (VGK/VPL) and “Emerging Markets” (VWO) funds.
- REITs: If unavailable, allocate to a broader U.S. equity fund.
- Bonds: Choose a “Short-Term Bond Index” (BSV equivalent) or “Total Bond Market” fund.
If exact matches are unavailable, simplify by combining allocations into broader categories (e.g., all international into one fund). For missing REITs or commodities, shift to stocks or bonds.
For IRAs:
Investors can replicate the portfolio exactly by purchasing the specified ETFs. IRAs offer more flexibility than 401(k)s, making this a strong option for hands-off retirement savings.