Sunday, March 15, 2009

Swenson on Investing

InfectiousGreed refers to a nice interview of David Swenson, the manager of the Yale endowment.

On stocks:
"So people should not be afraid of stocks now?

S: Not only should they not be afraid, they should be enthusiastic. One of the great ironies is that if you had talked to the average investor 18 months ago, he or she would have thought it was a pretty good idea to buy stocks. In recent months, the same investors despair about their portfolio and are fearful about putting money into the equity market.

That's 180 degrees wrong. They should have been cautious 18 months ago, when prices were much higher than they are now. They should be enthusiastic today."

On the outlook:
"Many young people today believe they will never be as prosperous as their parents. Should young adults have hope?

S: I'm an incredible optimist. We should be careful not to underestimate the resilience of this economy. I think we could have, in the next couple of years, a very hard slog. Looking five or ten years down the road, I'm very optimistic that we will come out of this strong and better."

On Asset Allocation:
"In his book Unconventional Success: A Fundamental Approach to Personal Investment, Swensen recommends the following allocations, for individual investors who want a "well-diversified, equity-oriented portfolio":

30% Domestic stock funds

20% Real estate investment trusts

15% U.S. Treasury bonds

15% U.S. Treasury inflation-protected securities

15% Foreign developed-market stock funds (the EU, Japan, Australia, etc.)

5% Emerging-market stock funds (Brazil, Russia, India, China, Taiwan, Korea, and the rest of the developing world)

Today, Swensen says, economic conditions might call for a modest revision. He now recommends that investors have 15 percent of their assets in real estate investment trusts, and raise their investment in emerging-market stock funds to 10 percent."

Update: Felix Salmon on what the above mix would have done in 08.

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