Coward's Portfolio
Coward's Portfolio
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
William J. Bernstein (born 1948) is an American neurologist with a PhD in chemistry who became a widely read author on asset allocation: The Intelligent Asset Allocator (2000), The Four Pillars of Investing (2002) and later books. He ran the Efficient Frontier website and newsletter. The Coward's Portfolio comes from his 1996 article 'The Coward's Portfolio - A Modest Proposal' in Efficient Frontier (efficientfrontier.com/ef/996/cowards.htm).
The article proposes a fixed, diversified equity index, the Coward's Equity Index (CEI), as a benchmark for active global managers. Bernstein's reasoning was that optimisation on past returns cannot reliably tell you the best future mix, so a rational but unsure investor should spread across US, foreign and small-cap segments, which hedges against any one of them lagging. He also argued that foreign stocks can reduce risk and, through rebalancing, add return, and that simple index mixes would beat most active global managers. The 'coward' is not a reference to low risk tolerance but to hedging one's bets.
In the 1996 article the CEI is 20% S&P 500, 20% US small stocks, 15% EAFE Europe, 5% EAFE Pacific ex-Japan, 5% MSCI Japan, 10% Continental European small, 5% UK small, 5% Japan small, 5% Pacific ex-Japan small and 10% Latin America. A 'small investor' version with Vanguard and other funds is also given. Either equity index could be blended with a short-term corporate bond fund. The article reports, for periods ending June 1996, annualised CEI returns of 16.54% (3 years), 16.07% (5 years) and 14.18% (8 years), versus 17.63%, 15.89% and 15.31% for the S&P 500, with lower standard deviations.
A second use of the name comes from Scott Burns's article of 3 December 2000, which reports Bernstein's finding that an equal mix of six asset classes returned 15.79% a year from 1975, against 8.4% for the mix chosen by a mean-variance optimiser; the six classes are not named in the text I could read. The widely circulated 'lazy portfolio' form came later and is the version on the Bogleheads wiki: 15% total stock market, 10% large value, 5% small blend, 10% small value, 5% each Europe, Pacific and emerging markets, 5% REIT and 40% short-term bonds. It was also summarised as 'similar to the Coffeehouse portfolio, but with short-term bonds and the international slice split into Europe, Pacific and emerging markets'.
The nearby four-equal-parts model is Bernstein's 'No-Brainer' (US large, US small, foreign, short-term bonds, 25% each), which is a separate portfolio on this site. Portfolio Charts introduced the Coward's portfolio as the step up in complexity from the No-Brainer in June 2016.
What is in it
| Total Stock Market (large blend) | 15% | VV in the ETF rendition |
| Large Value | 10% | |
| Small Blend | 5% | |
| Small Value | 10% | |
| Europe | 5% | VGK |
| Pacific | 5% | VPL |
| Emerging Markets | 5% | EEM |
| REIT | 5% | VNQ |
| Short-term bonds | 40% | 1-3 year Treasuries (SHY) in the ETF rendition |
How we model it
| Short-term government bonds | 40% |
| US large companies (S&P 500) | 15% |
| US large value stocks | 10% |
| US small value stocks | 10% |
| Developed markets outside the US | 10% |
| US small companies | 5% |
| Emerging markets | 5% |
| Real estate (REITs) | 5% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| Short-term government bonds | 40% | iShares USD Treasury Bond 1-3yr UCITS ETF (Dist) IE00B14X4S71iShares Euro Government Bond 1-3yr UCITS ETF (Dist) IE00B14X4Q57 |
| US large companies (S&P 500) | 15% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| US large value stocks | 10% | iShares Edge MSCI USA Value Factor UCITS ETF IE00BD1F4M44 |
| US small value stocks | 10% | SPDR MSCI USA Small Cap Value Weighted UCITS ETF IE00BSPLC413 |
| Developed markets outside the US (closest match) | 10% | iShares Core MSCI Europe UCITS ETF EUR (Acc) IE00B4K48X80iShares Core MSCI Japan IMI UCITS ETF IE00B4L5YX21 |
| US small companies | 5% | SPDR Russell 2000 U.S. Small Cap UCITS ETF IE00BJ38QD84iShares MSCI USA Small Cap ESG Enhanced CTB UCITS ETF USD (Acc) IE00B3VWM098 |
| Emerging markets | 5% | iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc) IE00BKM4GZ66 |
| Real estate (REITs) | 5% | iShares US Property Yield UCITS ETF IE00B1FZSF77iShares Developed Markets Property Yield UCITS ETF IE00B1FZS350 |
The idea
Admit that nobody knows which market segment will lead; own many slices of the equity market (large, small, value, foreign, emerging, REIT) in fixed proportions and pair them with short-term high-quality bonds for stability.
How people buy it
ETF rendition: VV, VTV, IJR, IJS, VGK, VPL, EEM, VNQ and SHY. Mutual-fund renditions exist at Vanguard and DFA.
Rebalancing as published
Not stated in the sources read for the lazy form; Bernstein's article credits rebalancing among less-than-perfectly correlated markets with extra return.
Variants
- Bernstein 1996 Coward's Equity Index (CEI), equity only: 20% S&P 500, 20% US small (DFA 9-10), 15% EAFE Europe, 5% EAFE Pacific ex-Japan, 5% Japan large, 10% Continental European small, 5% UK small, 5% Japan small, 5% Pacific ex-Japan small, 10% Latin America (efficientfrontier.com).
- 1996 'small investor' version SICEI: 20% Vanguard 500, 20% Vanguard Small Cap, 15% Vanguard European, 7% Vanguard Pacific, 8% Vanguard Emerging Markets, 5% Scudder Latin America, 12.5% Tweedy Browne Global Value, 12.5% Acorn International.
- MyPlanIQ summary: about 40% US stock, 15% international, 40% short-term bonds (search-summary; weights not verified).
- Bernstein's equal six-asset-class mix (Burns, 3 Dec 2000), classes not identified.
- No-Brainer: 25% each US large, US small, international, short-term bonds (m_bernstein).
Criticism
- Complexity: five more funds than the No-Brainer; Portfolio Charts says the extra complexity may not be worth it for everyone.
- Bernstein himself warns that the apparent edge of foreign stocks in 1973-94 was largely currency effects that he doubted would persist (1996 article).
- Short-term-bond-heavy mix has limited upside in long bull markets; the lazy form is a re-interpretation, not Bernstein's own table.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +77.9 % | +19.9 % | −4.4 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −55.5 % | −24.3 % | −64.3 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +176.6 % | +24.9 % | −28.9 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −37.6 % | −35.3 % | −38.4 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +152.5 % | +13.1 % | −18.2 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +614.3 % | +10.2 % | −17.4 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +244.5 % | +13.2 % | −10.8 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +41.8 % | +12.4 % | −9.8 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +181.9 % | +7.9 % | −22.5 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −20.1 % | −10.6 % | −22.5 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +67.5 % | +15.1 % | −9.7 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +890.0 % | +14.1 % | −18.1 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −13.3 % | — | −18.1 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +5.5 % | — | −10.1 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.0 % | — | −4.0 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +8.4 % | +6.2 % | −11.3 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −1.9 % | −0.7 % | −12.4 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +89.9 % | +13.9 % | −4.5 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −29.1 % | −20.5 % | −33.9 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +161.2 % | +9.3 % | −13.4 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −9.1 % | — | −9.1 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +26.8 % | +13.2 % | −14.7 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −9.3 % | −9.3 % | −14.5 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −45.3 % | −5.5 % | +10.7 % | +25.2 % | +122.2 % |
| 3 y (1168) | −27.2 % | +0.5 % | +9.7 % | +17.0 % | +33.9 % |
| 5 y (1144) | −11.5 % | +3.0 % | +9.2 % | +15.3 % | +26.5 % |
| 10 y (1084) | −0.8 % | +5.6 % | +9.4 % | +13.9 % | +17.1 % |
| 15 y (1024) | +2.2 % | +6.2 % | +9.6 % | +13.5 % | +16.5 % |
| 20 y (964) | +4.0 % | +6.7 % | +9.9 % | +12.8 % | +14.7 % |
| 30 y (844) | +7.0 % | +7.8 % | +10.3 % | +11.7 % | +13.2 % |
How it behaved in history
- 1973-1994 backtest in the 1996 article. Bernstein notes that foreign stocks' apparent advantage in this period was largely due to currency moves, which he doubted would persist. www.efficientfrontier.com
- 2007-2009. The simulated lazy form had its deepest drawdown of about -32.7% from Nov 2007 to Feb 2009 and recovered by Dec 2010 (LazyPortfolioETF, simulation). www.lazyportfolioetf.com
Published results (by others)
- CEI (equity) vs S&P 500, annualised, period ending June 1996 (3 years to mid-1996): CEI 16.54% vs S&P 500 17.63% www.efficientfrontier.com
- CEI vs S&P 500, 5 years (5 years to mid-1996): 16.07% vs 15.89% www.efficientfrontier.com
- CEI vs S&P 500, 8 years (8 years to mid-1996): 14.18% vs 15.31% www.efficientfrontier.com
- Equal mix of six asset classes vs mean-variance optimised mix (from 1975 to about 2000): 15.79% vs 8.4% a year; large-cap stocks 17.1% scottburns.com
- Lazy 60/40 Coward's portfolio simulation on LazyPortfolioETF, rebalanced yearly, pre-2005 data estimated (about 1975 to Sep 2026): 9.76% nominal annual return, standard deviation 9.18%, deepest drawdown -32.68% (Nov 2007 to Feb 2009) www.lazyportfolioetf.com
- Portfolio Charts on Coward's vs No-Brainer (qualitative) (long history): Coward's had slightly higher CAGR (a few tenths of a percent), better worst year and decade, and about 40% less volatility than Total US Stock at a similar CAGR portfoliocharts.com
What we could not verify
- A four-equal-parts form (stocks, bonds, TIPS and cash at 25% each) is sometimes attached to the name; it was not found for the Coward's Portfolio and is more likely the No-Brainer or a different portfolio.
- Bernstein's own bond share: the 1996 article blends the CEI with a short-term corporate bond fund in ratios like 70/30 or 40/60; I could not tell which orientation 40/60 had. I used the 60/40 lazy table from Bogleheads.
- The six classes in the 15.79% equal mix are not identified.
- Whether the Bogleheads table is exactly Bernstein's later published model or a community rendition.
Sources
- www.efficientfrontier.com
https://www.efficientfrontier.com/ef/996/cowards.htm - www.bogleheads.org
https://www.bogleheads.org/wiki/Lazy_portfolios - www.lazyportfolioetf.com
https://www.lazyportfolioetf.com/allocation/bill-bernstein-cowards-portfolio/ - en.wikipedia.org
https://en.wikipedia.org/wiki/William_J._Bernstein - scottburns.com
https://scottburns.com/the-couch-potato-portfolio-plus/ - portfoliocharts.com
https://portfoliocharts.com/2016/06/05/no-brainers-cowards-and-bernsteins-many-insights/
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.