The Investment Fiduciary

David Swensen’s asset allocation for retail investors

Posted by: investment-fiduciary on: October 27, 2008

In his book “Unconventional Success: A Fundamental Approach to Personal Investing,” David Swensen prescribes for retail investors an asset allocation markedly different from his management of Yale Endowment. (Also see How Harvard and Yale Endowments invest for bad times.)

  • Domestic Equity (30 percent) – Stocks in U.S.-based companies listed on U.S. exchanges.
  • Emerging Market Equity (5 percent) – Stocks from emerging markets across the globe. Brazil, Russia, India, China, etc.
  • Foreign Developed Equity (15 percent) – Stocks listed on major foreign markets in developed countries, such as the UK, Germany, France, and Japan.
  • REITs or Real Estate Investment Trusts (20 percent) – Stocks of companies that invest directly in real estate through ownership of property.
  • U.S. Treasury Notes and Bonds (15 percent) – These are fixed-interest U.S. government debt securities that mature in more than one year. Notes and bonds pay interest semi-annually. The income is only taxed at the federal level.
  • TIPs or U.S. Treasury Inflation-Protection Securities (15 percent) – These are special types of Treasury notes that offer protection from inflation, as measured by the Consumer Price Index. They pay interest every six months and the principal when the security matures.

The author is president of MZ Capital, a RIA serving DC/MD/VA. Get his monthly newsletter in your mailbox or get to the directory of his past articles.

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Michael Zhuang is principal of MZ Capital, a fee-only RIA and DFA-approved advisor based in Washington, DC. He is also a regular contributor to Morningstar Advisor. Michael can be reached at info1@mzcap.com.

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