David Swensen Asset Allocation Model

David Swensen is the Chief Investment Officer of Yale Endowment. Here are his investment recommendations for himself and others.

For investors unable to compete effectively in active management, Swensen recommended a generally passive approach of indexed funds with the following allocations:

• 30% domestic equities
• 15% foreign equities
• 05% emerging markets
• 20% real estate
• 15% traditional bonds
• 15% Treasury Inflation-Protected Securities (TIPS)

For those investors, investing should be boring—like watching grass growing. If they try to engage in active management on a casual basis, "they are bound to fail," he said. Swensen’s pioneering approach to alternative investing has contributed handsomely to Yale’s 20 years of 16 percent annualized returns. Yale’s current asset allocation is the following:

• 14% domestic equities
• 14% international equities
• 05% fixed income
• 25% absolute return
• 25% real estate
• 17% private equity

The 25% absolute return and the 17% private equity may not be available to average investors. However, the ETF markets are very creative now. New ETF funds are introduced every month. One may be able to find these alternative investment vehicles in the coming years.