Swensen on simplicity

abnormalreturns
November 8th, 2005

John Kimelman writing in Barrons.com has a Q&A session with David Swensen, Chief Investment Officer of Yale University’s endowment fund. Swensen’s book, Unconventional Success: A Fundamental Approach to Personal Investment is receiving wide exposure in the press.

The theme of the Q&A focuses on Swensen’s belief that individual investors should not attempt to choose active managers, rather they should focus on a diversified portfolio of low-cost, index funds. An excerpt:

Q: It’s pretty well known that most of the variance in investment performance — 90% or more — can be explained by basically broad asset allocation decisions rather than by individual stock and bond selection. Why is it, then, that so many investors still focus on picking the right stocks and bonds?
A: Because it’s fun. Individuals systematically get it wrong and whether it’s because it’s exciting to pick individual stocks or try and find a hot mutual fund or because they are conditioned to do that, who knows?

The article also includes a handy table with Swensen’s target portfolio for individuals:

U.S. stocks 30%
Foreign stocks (developed) 15%
Foreign stocks (emerging) 5%
Real estate 20%
U.S. Treasury bonds 15%
Inflation-protected Treasuries 15%

Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

You might be interested in: