David Swensen, the manager of Yale University’s $27 billion endowment fund, is regarded as one of the greatest investors in history and for good reason, as the fund has averaged a 12.5% per annum return for thirty years (source). His strategy in building the esteemed university’s fund is predicated around simple, common-sense investing. He detailed this strategy in the 2005 book “Unconventional Success,” which translates his theory of building an investment portfolio for an Ivy League University into something anyone can understand.
Throughout the book, Swensen stresses two points that he believes are essential for any investor:
- Maintain a 20% portfolio allocation to real estate
- Choose to invest only in low fee opportunities
Why real estate?
Swensen strongly supports the concept of portfolio diversification. His reasoning for this is simple and harkens back to the old saying “don’t put all your eggs in one basket.” Spreading a portfolio across an array of asset classes reduces risk while allowing for increased returns.
Real estate is one asset class Swensen recommends investors allocate anywhere between 15 and 20% of a portfolio into. Since real estate responds to different market forces than stocks or bonds, this insulates a portion of your portfolio from market corrections and crashes. In “Uncommon Success,” Swensen states that real estate risks and returns fall somewhere between those of bonds and equities.
But his book was written in 2005, years before crowdfunding platforms like DiversyFund made it easy for the everyday person to participate in real estate investments. In 2005, the easiest way for the typical investor to have portfolio exposure to real estate was through REITs, which are largely publicly traded stocks that have some degree of correlation to traditional equities.
Today, DiversyFund is making it easy to invest like Swensen through their online platform. Technology and the power of crowdfunding have made real estate investing for the typical investor simple. It’s never been easier to add real estate and diversification, to your portfolio. And just like Swensen our real estate projects are all vetted by our professional team of experts. We bring top-quality real estate investments to your portfolio and you don’t need millions of dollars to get started anymore.
In addition to an in-depth discussion of his allocation strategies, Swensen stressed the damages he claims actively-managed mutual funds have caused average investors. These funds typically charge high fees in exchange for management expertise that allows an investment to “beat the market.” However, these funds frequently fail to do just that.
DiversyFund goes beyond the low-fee approach to investing by charging users no fees for using its platform. Our team takes our profits only after our investors get their share first. This differs from the actively-managed mutual funds that Swensen criticizes. And it also differs from other real estate crowdfunding platforms, which routinely charge fees to users for access.
David Swensen became a legend by maintaining a stellar track record as the head portfolio manager for Yale’s endowment fund using his tried and true strategy of keeping at least 20% of the portfolio in alternative assets. At DiversyFund, we’re offering everyday investors a chance to follow in Swensen’s footsteps by making real estate investing and diversification accessible to all investors.
You now have your own chance to invest like a legend. Visit our investments page by clicking here and learn more about our latest offerings.