Sheltered Sam 0/100 description

Mar 18, 2025 | 401Ks

Overview of the Bill Bernstein Sheltered Sam 0/100 Portfolio

1. Background and Philosophy

The Bill Bernstein Sheltered Sam 0/100 portfolio is designed by Dr. William Bernstein, a renowned neurologist-turned-financial theorist and author of several investment books, including “The Intelligent Asset Allocator.” Bernstein is a proponent of passive investing, emphasizing low-cost, diversified portfolios tailored to an investor’s risk tolerance and time horizon. The “Sheltered Sam” series is part of his lazy portfolio lineup, designed for tax-advantaged accounts like 401(k)s and IRAs.

This specific portfolio (0/100) is the most conservative in the series, allocating 100% to bonds. It is suited for retirees or risk-averse investors seeking capital preservation and steady income with minimal volatility.

2. Asset Allocation Analysis

The portfolio consists of:

  • SHY (iShares 1-3 Year Treasury Bond ETF): 60% allocation to short-term U.S. Treasuries, providing stability and low interest-rate risk.
  • TIP (iShares TIPS Bond ETF): 40% allocation to Treasury Inflation-Protected Securities (TIPS), offering inflation hedging.

Diversification: The portfolio is 100% fixed income, with no equity exposure. It is diversified across short-term Treasuries (SHY) and inflation-protected bonds (TIP), reducing credit risk but lacking growth potential.

Risk Level: This is an ultra-conservative portfolio with minimal volatility. It prioritizes capital preservation over growth, making it suitable for retirees or those with a short investment horizon.

Pros:

  • Low volatility: Ideal for risk-averse investors.
  • Inflation protection: TIPS hedge against rising prices.
  • Tax efficiency: Bonds are better held in tax-sheltered accounts.

Cons:

  • Limited growth potential: No equity exposure means lower long-term returns.
  • Interest rate sensitivity: Bond prices may decline if rates rise.

3. Practical Application in Retirement Accounts

For 401(k) or IRA Investors:

To replicate this portfolio in a 401(k) or IRA, follow these steps:

  1. Identify equivalent funds in your plan:
    • For SHY, look for a short-term Treasury bond fund (e.g., “U.S. Short-Term Bond Index”).
    • For TIP, search for a TIPS fund or “inflation-protected securities” option.
  2. If exact funds are unavailable:
    • Allocate the SHY portion to a broader bond fund (e.g., “Total Bond Market”).
    • If no TIPS fund exists, consider a broader inflation-protected or intermediate-term bond fund.
  3. Rebalance annually to maintain the 60/40 allocation.

Note: Since this portfolio is 100% bonds, investors seeking growth may need to blend it with equity-heavy portfolios (e.g., Bernstein’s “Sheltered Sam 60/40”).