Dec 18 2009

Ivy League Investing For The Common Man.

David Swensen has managed the Yale University endowment from 1984 to 2008 and during that time, the endowment returned an annualized 16.6% – 5 points better than the S&P 500 and a generic balanced portfolio of 60% in a stock index, and 40% in bond index. That equates to a 40 times a grow in wealth with 1/3 of the volatility.Ivy League Investing for the common man_Bingham Hall_Yale University

Not too shabby.

That’s the rosy part of the picture though, since 2008 was a devastating year for just about all kinds of investments. From June 2007 to June 2008, the endowment is down an estimated 25-35%. But hey, no body’s perfect. And that’s still a hair better than the broader market. Besides, even when 2008 is factored into the equation, the Yale endowment returned an annualized 14%.

Here’s how you can create your own Ivy League endowment fund with a 10% allocation in each of these ETFs.

iPath S&P GSCI Total Return Index ETN (GSP)

GSP is linked to the GSCI (Goldman Sachs S&P GSCI Commodity Index) Total Return Index and provides exposure to unleveraged commodities. The GSP index is production-weighted, reflecting the relative significance of each commodity to the world economy. Crude oil is currently the dominant commodity in this nondiversified index.

iShares Barclays TIPS Bond (TIP)

The iShares Barclays TIPS Bond ETF seeks results that correspond generally to the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L). This fund invests at least 90% of the assets in TIPS and at least 95% if the assets in U.S. government bonds. The remainder of assets can be in U.S. government bonds not included in the underlying index.

PowerShares DB Commodity Index Tracking (DBC)

The DBC ETF tracks changes in the level of the Deutsche Bank Liquid Commodity index. This fund investments in a portfolio of exchange-traded futures on the commodities comprising the Deutsche Bank Liquid Commodity index. The index commodities include: Heating Oil, light, Sweet Crude Oil (WTI), Natural Gas, Brent Crude, RBOB Gasoline, Gold, Silver, Aluminum, Zinc, Copper Grade A, Corn, Wheat, Soybeans, and Sugar.

SPDR Dow Jones Intl Real Estate (RWX)

The RWX seeks to replicate the Dow Jones Global ex-US Select Real Estate Securities index. The index is a float adjusted market cap index designed to measure the performance of publicly traded real estate securities in countries excluding the U.S..

Vanguard Emerging Markets Stock ETF (VWO)

Like the name suggests, this ETF tracks the performance of the MSCI Emerging Markets index. The VWO is a passively managed investment fund which invests all or most of its assets in a representative sample of the common stocks included in the MSCI Emerging Markets index. The index currently includes around 781 common stocks.

Vanguard FTSE All-World ex-US ETF (VEU)

The VEU fund tracks the FTSE All-World ex-US Index. The index is a free-float-adjusted, market cap weighting of nearly 2,200 stocks of companies located in 46 countries.

Vanguard REIT Index ETF (VNQ)

This fund invests in U.S. based real estate investment trusts (REITs) and is perfect for income and moderate long-term capital appreciation. The fund typically invests 98% of its assets in REITs and tracks the Morgan Stanley Capital International (MSCI) US REIT Index.

Vanguard Small Cap ETF (VB)

The VB ETF tracks the MSCI US Small Cap 1750 benchmark index that measures the investment return of small cap stocks. It’s a passively managed, broadly diversified fund of smaller U.S. companies’ stock.

Vanguard Total Bond Market ETF (BND)

As the name suggests, the BND ETF invests the majority of its assets (no less than 80%) in bonds held in a broad, market-weighted bond index. The fund maintains a dollar-weighted average maturity consistent with that of the index, ranging between 5 and 10 years.

Vanguard Total Stock Market ETF (VTI)

Vanguard’s VTI fund tracks the MSCI US Broad Market index. It’s passively managed and invests in 1,200-1,300 of the stocks in the MSCI US Broad Market index. It is often used as a proxy for “owning the entire U.S. Stock market.”


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