With over $29 billion dollars under management, the Yale endowment is the second largest college endowment in the world (Harvard is #1).
It wasn’t always that way.
The Yale endowment had “only” $1.4 billion back in 1985 when David Swensen took over. Given his incredible track record, many individual investors have wanted to follow his investing advice for their own portfolios.
About David Swensen
David Swensen took over management of Yale’s endowment in 1985. In the subsequent three decades, he has produced superlative returns (including a 20-year winning streak of positive returns from 1988-2007). As a result, his investment style has been emulated by many other university endowments. He described his investment approach in the book, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, published back in 2000.
In 2005, David Swensen published a follow-up book written for the average investor. This book, Unconventional Success: A Fundamental Approach to Personal Investment, stresses the importance of keeping fees low and proposes a model portfolio for those of us who don’t have access to some of the investment vehicles that large endowments have.
The David Swensen Model Portfolio
David Swensen described his model portfolio in a 2015 interview with NPR. It consists of the following asset allocation:
| Asset Class | Allocation Percentage |
| Domestic Equity | 30% |
| International Equity | 15% |
| Emerging Markets | 10% |
| TIPS | 15% |
| U.S. Treasuries | 15% |
| REITs | 15% |
How to Replicate the Swensen Portfolio using Vanguard or Fidelity
Vanguard (with Expense Ratios)
| Asset Class | Fund (Admiral) | ETF |
| Domestic Equity | VTSAX (0.04%) | VTI (0.03%) |
| International Equity | VTMGX (0.07%) | VEA (0.05%) |
| Emerging Markets | VEMAX (0.14%) | VWO (0.12%) |
| TIPS | VIPSX (0.20%) | VTIP* (0.06%) |
| U.S. Treasuries | VSIGX (0.07%) | VGIT (0.07%) |
| REITs | VGSLX (0.12%) | VNQ (0.12%) |
| Portfolio Expense Ratio | 0.095% | 0.066% |
*VTIP consists of only short-term TIPS, while VAIPX contains TIPS of all durations (there is no ETF version of VAIPX).
For U.S. Treasuries, I used an intermediate-bond Treasury index fund. In this reply to a reader, David Swensen stated that his preference was to use a Treasury bond fund that matches the duration of the market (approximately 5 years):
Fidelity (with Expense Ratios)
| Asset Class | Fund (Premium) | ETF |
| Domestic Equity | FSKAX (0.015%) | ITOT (0.03%) |
| International Equity | FSPSX (0.035%) | IEFA (0.07%) |
| Emerging Markets | FPADX (0.075%) | IEMG (0.14%) |
| TIPS | FIPDX (0.05%) | TIP (0.19%) |
| U.S. Treasuries | FUAMX (0.03%) | IEI (0.15%) |
| REITs | FSRNX (0.07%) | FREL (0.08%) |
| Portfolio Expense Ratio | 0.0398% | 0.0965% |
Historical Returns
Using the historical asset class returns from Portfolio Visualizer, I calculated the returns of the Swensen portfolio since it was published in 2005. For comparison, I also computed the returns of an equivalent three-fund portfolio, consisting of 50% Total Stock Market, 20% International Stock Market, and 30% Total U.S. Bond Market.
| Year | Swensen | 3-Fund |
| 2006 | 17.3% | 14.4% |
| 2007 | 8.0% | 7.9% |
| 2008 | -26.6% | -25.8% |
| 2009 | 26.3% | 23.5% |
| 2010 | 14.5% | 12.7% |
| 2011 | 1.3% | -0.2% |
| 2012 | 13.6% | 13.0% |
| 2013 | 11.3% | 19.0% |
| 2014 | 8.7% | 7.1% |
| 2015 | -1.2% | -0.6% |
| 2016 | 7.4% | 7.9% |
| 2006-16 | 6.4% | 6.3% |
And this is how $1,000 invested in the Swensen portfolio and a similar three-fund portfolio would have performed since 2006:
Better Than Other Allocations?
If you decide to use the Swensen model portfolio for your investments, remember to invest the funds in a tax-efficient manner. Put the tax-inefficient REITs, bonds, and emerging markets funds in tax-deferred / retirement accounts, and put your Total U.S. Stock Market and International Stock Market funds in taxable accounts.
It’s impossible to know if this portfolio can provide better returns with the same risk as a simpler three-fund portfolio. The limited evidence we have (11 years of historical returns since the publication of the model portfolio) suggests that the Swensen portfolio performs about the same as a standard three-fund portfolio.
There is no right asset allocation, but there is an allocation that you are comfortable with and can stick with. If the Swensen portfolio is one that fits your risk appetite, you can implement it using ETFs or mutual funds at Vanguard or Fidelity.
The key is to not use David Swensen’s or any other person’s portfolio because you like or dislike its historical returns. The relative returns of asset classes change with time and it is easy to move to a Swensen portfolio when real estate and emerging markets are doing well, but then to a three-fund portfolio when real estate is lagging, and an all-cash portfolio when the market is crashing.
What do you think? Do you like David Swensen’s portfolio? Do you like his portfolio more than a simple three-fund portfolio?
I recently came upon your article and love it love it. In fact, I love it so much I am going to try to match my Fidelity fund with his approach. Thanks so much. I am excited I can do my own investing instead of paying an advisor this 1% AUM fee.
I’m glad you like it, Joyce! Certainly David Swensen’s portfolio can be created at a very low cost. Mr. Swensen designed it this way. He strongly favors using low-cost index funds to implement his model portfolio.
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At this stage of the game, we are willing to be a bit more aggressive. So 30% across TIPS and Treasuries is too conservative for me right now (and I’m pretty financially conservative!) We are probably overweight in domestic equities, as we don’t have much at all in international and emerging markets.
I do wish we had REIT options in our 401(k) plans. As you mention, the tax bite would be too much for us right now if REITs were in our brokerage accounts. From the 2006-2016 table you have above, the 3-fund tracks the Swensen portfolio pretty well – except for 2013. I wonder what the difference was that year?
That was the year the U.S. stock market went up 33%. Emerging markets fell by 5% and TIPS fell by 8% in 2013, so the Swensen portfolio significantly lagged.
The only problem I have with analysis like this is that if you are investing $1000 in a Swensen Portfolio and leaving it there, you aren’t following the strategy. You are supposed to rebalance regularly. Gains get locked in and losses indicate value buying opportunities for greater future gains.
when market is crashing, all cash? I have learned from other sources that when market is crashing, it is the best time to enter into market. Maybe I am wrong, please advise. thank you.
I see that VAIPX treasury fund has a minimum investment of $50,000. Is there another viable and comparable Vanguard fund to use in its place?
You are correct — VIPSX is the Investor Shares version of VAIPX with a $3,000 minimum and a 0.20% expense ratio.
I agree. A big component of Swensen’s plan is regular rebalancing to stick with your chosen allocation percentages. It’s not a set it and forget it strategy.
The test written about above does not indicate that those important steps were followed and thus it is hard to conclude anything from these test results.
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