Sheltered Sam 40/60 description

Mar 18, 2025 | 401Ks

William Bernstein Sheltered Sam 40/60 Allocation: Overview

1. Background and Philosophy

The William Bernstein Sheltered Sam 40/60 Allocation is a lazy portfolio designed by Dr. William Bernstein, a renowned neurologist-turned-financial theorist and author of influential books like The Four Pillars of Investing. Bernstein advocates for low-cost, passive investing with a focus on diversification and risk management. This portfolio is tailored for conservative investors, particularly those in or near retirement, with a 40% equity / 60% fixed-income split. It emphasizes sheltering assets from volatility while maintaining exposure to growth through equities.

2. Asset Allocation Analysis

The portfolio is divided into equities (40%) and bonds (60%), with further diversification across regions and asset classes:

  • U.S. Stocks (30%): VTV (10%, large-cap value), VV (8%, large-cap blend), IJS (6%, small-cap value), IJR (2%, small-cap blend), and VNQ (4%, REITs).
  • International Stocks (10%): EFV (2.8%, developed markets value), EEM (2%, emerging markets), VGK (2%, Europe), and VPL (2%, Asia-Pacific).
  • Bonds (60%): SHY (36%, short-term Treasuries) and TIP (24%, inflation-protected securities).
  • Commodities (1.2%): GLTR (precious metals basket).

Key Characteristics:

  • Diversification: Spread across U.S. and international equities, bonds, and commodities to mitigate risk.
  • Risk Level: Conservative due to the 60% bond allocation, but equities provide growth potential.
  • Pros: Low-cost ETFs, inflation protection (TIP), and reduced volatility.
  • Cons: Lower long-term returns than aggressive portfolios; commodities (GLTR) may underperform.

3. Practical Application in Retirement Accounts

For 401(k) Accounts:

Investors should map the portfolio to their plan’s available funds:

  • Match ETFs to 401(k) Options: Look for funds with similar benchmarks (e.g., S&P 500 index funds for VV, short-term bond funds for SHY).
  • Unavailable Holdings: Allocate to broader categories (e.g., replace VGK with an international stock fund).
  • Commodities: If GLTR isn’t available, shift the 1.2% to equities or bonds.

For IRA Accounts:

Investors can replicate the portfolio exactly by purchasing the specified ETFs. IRAs offer greater flexibility for niche holdings like GLTR.

Note: Rebalance annually to maintain the target allocations and adjust for changing risk tolerance.