Dr. William Bernstein is a physician and neurologist as well as a financial adviser to high net worth individuals. His smart money portfolio comprises the following fund allocation:

40% Vanguard Short Term Investment Grade VFSTX (SCJ, SHY)

15% Vanguard Total Stock Market VTSMX (NYSEARCA:VTI)

10% Vanguard Small Cap Value VISVX (NYSEARCA:VBR)

10% Vanguard Value Index VIVAX (NYSEARCA:VTV)

5% Vanguard Emerging Markets Stock VEIEX (NYSEARCA:VWO)

5% Vanguard European Stock VEURX (NYSEARCA:VEU)

5% Vanguard Pacific Stock VPACX (NYSEARCA:VPL)

5% Vanguard REIT Index VGSIX (RWX, VNQ)

5% Vanguard Small Cap Value NAESX or VTMSX (VB)

To summarize:

40% in U.S. equities

10% in international equities

5% in emerging market equities

5% in REITs

40% in fixed income

'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 investmentâ€™s overall performance.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (133.2%) in the period of the last 5 years, the total return, or increase in value of 56% of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- Compared with SPY (80.4%) in the period of the last 3 years, the total return, or performance of 38.5% is lower, thus worse.

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Which means for our asset as example:- The compounded annual growth rate (CAGR) over 5 years of Dr. Bernstein's Smart Money Portfolio is 9.3%, which is smaller, thus worse compared to the benchmark SPY (18.5%) in the same period.
- Looking at compounded annual growth rate (CAGR) in of 11.5% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (21.8%).

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:- Looking at the 30 days standard deviation of 10.6% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (18.7%)
- During the last 3 years, the volatility is 12.7%, which is smaller, thus better than the value of 22.4% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the downside deviation of 7.9% of Dr. Bernstein's Smart Money Portfolio is smaller, thus better.
- Compared with SPY (16.2%) in the period of the last 3 years, the downside deviation of 9.6% is lower, thus better.

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Applying this definition to our asset in some examples:- Looking at the Sharpe Ratio of 0.65 in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.85)
- Compared with SPY (0.86) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.71 is lower, thus worse.

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (1.18) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.86 of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- During the last 3 years, the downside risk / excess return profile is 0.94, which is lower, thus worse than the value of 1.19 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.'

Using this definition on our asset we see for example:- Looking at the Ulcer Index of 4.02 in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (5.59 )
- Looking at Downside risk index in of 4.73 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (6.36 ).

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Applying this definition to our asset in some examples:- The maximum drop from peak to valley over 5 years of Dr. Bernstein's Smart Money Portfolio is -24.3 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Looking at maximum DrawDown in of -24.3 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-33.7 days).

'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:- Compared with the benchmark SPY (139 days) in the period of the last 5 years, the maximum days below previous high of 187 days of Dr. Bernstein's Smart Money Portfolio is greater, thus worse.
- During the last 3 years, the maximum days below previous high is 187 days, which is larger, thus worse than the value of 119 days from the benchmark.

'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 (32 days) in the period of the last 5 years, the average time in days below previous high water mark of 42 days of Dr. Bernstein's Smart Money Portfolio is larger, thus worse.
- Looking at average days below previous high in of 37 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (25 days).

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 Smart Money 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.