Yale endowment manager David Swensen was in Barron's over the weekend and for some reason he was the mid-week interview too.
I write about this a fair bit. Keeping things very simple is absolutely the best thing for a lot of do-it-yourselfers. Every so often you will find an article giving how much time is needed for different types of investors. I have no idea how valid any of those articles are, I do know it takes me about 75 hours a week to everything I need to do. You really gotta love something to spend that much time on it.
One of the bigger themes of this site is new investment products and new types of information will make investing easier for do-it-yourselfers (and professionals too, I suspect). It is important to distinguish what I mean here. Beating the market will not get easier but staying close without portfolio implosions will be easier.
I don't think managing an equity portfolio with a half dozen ETFs needs to be a full time job, although many folks might devote that kind of time.
A very simple portfolio of 40% SPY, 30% EFA and 30% TLT (just an example) will not blow up. It can go down to be sure but you will not be down anywhere close to 50% unless the market is down that much.
Although Mr. Swensen doesn't offer many news things in his various interviews he is worth listening to on this topic.
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8 comments:
my kind of man!
I may be a little cynical but I always question the wisdom of applying big fund manager's to ordinary people's portfolios. At this point, US stocks, real estate and probably TIP's are over-valued. These 3 sectors in Swensen's recommendation represent almost 2/3 of the total. I would say if he recommended the same portfolio three years ago he could be called a genius. But for today, this portfolio, consisting of a majority in over-valued securities, will not deliver satisfactory results for the future.
Simple has the advantage of low cost.
to cynical,
he is not suggesting the yale endowment allocation for individuals. His entire idea for individuals involves ETFs.
Your simple portfolio with quarterly rebalancing would capture 85% to 90% of the S&P long term with half the volatility. It is not for me, as my goal is to beat the market by 300 points or better. But if you could talk 85% of all investors into following this simple plan they would improve their historical performance.
The average person simply does not believe that big cap stocks average nominal returns of better than 11%. The largest loss is taken by those who hide in "safe" bank CD's etc.
Jack, it is clear your love of capital markets keeps you more involved than just about anyone.
am I right?
To Roger from cynical,
I agree with your point of the low cost advantage of index funds. However, I was referring to the high% in US stocks, real estate and TIPs recommended for the individual investors by this Yale guru. If you buy index funds for these three sectors, in spite of the low cost in acquiring them, your returns for the future will still be unsatisfactory. The reason is simple, everything being equal, the cheaper the investment you can buy the higher will be your return for the future. At this point, US stocks, real estate and TIPs are simply very expensive as compared to the historical norm.
To Roger from cynical,
I agree with your point of the low cost advantage of index funds. However, I was referring to the high% in US stocks, real estate and TIPs recommended for the individual investors by this Yale guru. If you buy index funds for these three sectors, in spite of the low cost in acquiring them, your returns for the future will still be unsatisfactory. The reason is simple, everything being equal, the cheaper the investment you can buy the higher will be your return for the future. At this point, US stocks, real estate and TIPs are simply very expensive as compared to the historical norm.
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