You may have heard that David Swensen passed away at age 67 after a long battle with cancer. Swensen was appointed to head Yale’s endowment in 1985 when he was only 31. The term endowment model for investing is attributed to him, although I would also argue that Jack Meyer from Harvard also has a seat at that table. Here is more on Swensen from Barron’s.
Swensen is a perfect example of what I mean when I say take bits of process from various sources to create your own process. Swensen’s endowment model had a huge exposure to alternatives as well as venture capital and other illiquid investment pools, with very little allocated to domestic equities.
The bit of process I took from him is having exposure to alternatives but in much smaller doses, in amounts targeted more toward smoothing out the ride of an equity-centric portfolio versus hedging a portfolio of alts and illiquid investments with a small exposure to the stock market.
Despite the myriad articles suggesting how to mimic the Yale Endowment, Swensen wrote about individuals having pretty simple portfolios with 50-70% in equities (depending on how you view REITs) and 15% each in Treasury Bonds and TIPS.
The Yale Endowment is not simple, his idea for individuals favored simplicity. For each of us there is a dividing line between simple and complex. If you manage your portfolio, I strongly encourage that you construct a portfolio that you view as simple and of course that gives you a reasonable change of achieving whatever your goal might be. For most folks, the real goal won’t be an absolute number or performance hurdle but will be to end up with a portfolio that sustains in retirement for a reasonably long period and that allows for maintaining the lifestyle you had before retiring.
My idea of simple for someone wanting to manage their own portfolio and not make a full time gig out of it would be a lot in broad based equity funds, a little bit in diversifiers and even less in crypto (an amount you’d be willing to see go poof in an asymmetric bet). For now, no bonds as simple bond products and proxies are pretty much return free risk at the moment. That is simple, it is not the simplest and there will be drawbacks. All types of portfolios have drawbacks. The right portfolio will give you a reasonable chance of reaching your goals and at the same time will allow you to sleep at night.