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Ivy League endowments have a reputation for exotic investment strategies that pay off big. But, according to a new report, they’ve been outpaced in the past decade by a simple strategy long favored by mom-and-pop investors: putting 60% in stocks and 40% in bonds.
For years, large universities' investment offices were the envy of the asset management industry. Many of these adhere to the so-called Yale Model, pioneered by Yale's David Swensen starting in the early 2000s. The strategy eschews the traditional emphasis on stocks and bonds, instead focusing on expensive alternative investments, including everything from forest land to hedge funds. That's helped some endowments grow to monumental proportions: Harvard University’s endowment of $39.2 billion is the world’s largest, followed by Yale’s $29.4 billion.
Many investors, however, have questioned whether the high costs and illiquidity associated with the endowment model make sense. Helped along by one of the stock market's best runs, a humble 60/40 stock-bond portfolio built from low-cost index funds would have outperformed all Ivy endowments for the past 10 years through July, according to the new report by investment researcher Markov Processes International.
Over the past decade, Columbia and Princeton topped Ivy returns, delivering 8% annually; schools like Harvard and Cornell, on the other hand, lagged behind with returns of 4.5% and 4.8%, respectively. The 60/40 portfolio returned 8.1%, according to the study, which was earlier reported in investing industry trade publication Institutional Investor.
So is a 60/40 portfolio right for you? Most experts think that younger investors should have more stocks. The typical target-date fund -- all-in-one portfolios designed to serve as defaults in 401(k) plans -- has 70% to 80% in stocks for workers in their 30s and 40s. Still it's more evidence that when it comes to investing, some tried-and-true strategies are often tried and true for a reason.