Swensen (Yale model)
Swensen / Yale model for individual investors (six asset classes)
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
David Swensen became chief investment officer of the Yale University endowment in 1985, when it held about 1.3 billion dollars; by his death in May 2021 it had grown to about 31 billion dollars after distributions (Wikipedia). With Dean Takahashi he built what became known as the endowment model: a portfolio split roughly evenly across several asset classes, with heavy use of illiquid alternatives (private equity, venture capital, real assets, hedge funds) instead of the classic 60/40 mix. Yale reported annual returns of about 11.8% over ten years to 2009 and about 12.4% a year over 30 years to 2020 (Yale report and Wikipedia).
Swensen set out the institutional approach in 'Pioneering Portfolio Management' (2000, revised 2009). It argued that equity orientation, diversification and exploitation of illiquid markets give endowments an edge, and criticised dependence on consultants and conventional benchmarks.
In 'Unconventional Success: A Fundamental Approach to Personal Investment' (2005), Swensen wrote for individuals and was sceptical about whether they could replicate the alternatives that drive Yale's results. He recommended a portfolio of six core asset classes, held through low-cost index funds, with regular rebalancing. His generic allocation: 30% US domestic equity, 15% foreign developed equity, 5% emerging-market equity, 20% real estate (REITs), 15% US Treasury bonds and 15% TIPS. No class is below 5% or above 30%. He did not name specific funds in the book, though he praised not-for-profit providers such as Vanguard.
The book's allocation was revised in a Yale Alumni Magazine interview, printed in the March/April 2009 issue and discussed on the My Money Blog on 2 December 2009: REITs were cut from 20% to 15% and emerging markets raised from 5% to 10%, with the other weights not restated. The blogger asked whether this was performance-chasing after the 2008 crisis; commenters suggested it simply reflected the shrinking REIT share and growing emerging-market share of world markets.
The endowment itself fell 24.6% in fiscal 2009 (July 2008 - June 2009), from 22.9 to 16.3 billion dollars, as equity exposure, illiquidity and failed diversification hurt; Yale's own release said its roughly 4% bond allocation gave little cushion, and Swensen publicly stood by the allocation. Critics later argued, in a 2010 Tellus Institute report, that the endowment model contributed to the crisis, and many observers say outside investors cannot copy the private-market part of Yale's results. The retail model is not Yale's actual portfolio, only Swensen's translation of its principles into liquid index funds.
What is in it
| Domestic equity (US) | 30% | |
| Foreign developed equity | 15% | |
| Emerging-market equity | 5% | 2009 interview revision: 10% |
| Real estate (REITs) | 20% | 2009 interview revision: 15% |
| US Treasury bonds | 15% | Third-party sources differ on maturity: some say intermediate (SHY/IEF), others long-term |
| Treasury Inflation-Protected Securities (TIPS) | 15% |
How we model it
| US large companies (S&P 500) | 30% |
| Real estate (REITs) | 20% |
| Developed markets outside the US | 15% |
| Intermediate government bonds (10 y) | 15% |
| Inflation-protected bonds (TIPS) | 15% |
| Emerging markets | 5% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| US large companies (S&P 500) | 30% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| Real estate (REITs) | 20% | iShares US Property Yield UCITS ETF IE00B1FZSF77iShares Developed Markets Property Yield UCITS ETF IE00B1FZS350 |
| Developed markets outside the US (closest match) | 15% | iShares Core MSCI Europe UCITS ETF EUR (Acc) IE00B4K48X80iShares Core MSCI Japan IMI UCITS ETF IE00B4L5YX21 |
| Intermediate government bonds (10 y) | 15% | iShares USD Treasury Bond 7-10yr UCITS ETF (Dist) IE00B1FZS798 |
| Inflation-protected bonds (TIPS) | 15% | iShares USD TIPS UCITS ETF USD (Acc) IE00B1FZSC47 |
| Emerging markets | 5% | iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc) IE00BKM4GZ66 |
The idea
Swensen argues that equity risk is the main source of long-run return, but that equity-like assets should be diversified across US, developed, emerging and real-estate markets, and that fixed income should be limited to safe government bonds (Treasuries and TIPS) which protect in deflation and inflation. He avoids corporate bonds because of incentives he considers unfavourable to bondholders. REITs and TIPS give inflation protection; equity share is 70% including REITs.
How people buy it
No funds are named in the book. Third-party examples: Vanguard Total Stock Market (VTI) for domestic equity, VEU/VEA/EFA for foreign developed, VWO/EEM for emerging, VNQ/ICF for REITs, SHY/IEF for Treasuries and TIP for TIPS. Swensen urges low-cost index funds from non-profit firms.
Rebalancing as published
The book recommends regular rebalancing back to targets; the exact frequency or tolerance band was not verified in sources found.
Variants
- 2009 revision: 30% US equity, 15% foreign developed, 10% emerging, 15% REITs, 15% Treasuries, 15% TIPS (My Money Blog).
- Using a single total-world equity fund in place of the three equity sleeves (suggested by commenters on My Money Blog).
- Adding a total bond market fund or corporate bonds (suggested by commenters; Swensen himself rejects corporates).
Criticism
- A HumbleDollar backtest found the model lost about as much as a conventional alternative from the 2007 peak to the 2009 low, mainly because REITs fell even more than US stocks (per the Seeking Alpha / HumbleDollar summary; exact figures not retrieved).
- The 20% REIT weight is a large bet for a single sector; Swensen himself reduced it to 15% in 2009.
- Retail investors cannot access the private-equity, venture and hedge fund managers that drove Yale's returns; the retail model drops most of what made Yale's performance (see Yale's own 2009 -24.6% fiscal year).
- The 2009 revision invites suspicion of performance-chasing (My Money Blog).
- Government-only bonds exclude corporate bonds, which some commenters consider unnecessary conservatism.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +100.3 % | +24.5 % | −4.1 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −62.2 % | −28.3 % | −70.2 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +187.8 % | +25.9 % | −25.9 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −38.7 % | −36.4 % | −39.5 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +160.6 % | +13.6 % | −17.9 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +763.8 % | +11.2 % | −17.7 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +287.1 % | +14.5 % | −10.9 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +28.9 % | +8.8 % | −11.8 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +120.3 % | +6.0 % | −30.4 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −26.7 % | −14.4 % | −30.4 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +53.5 % | +12.4 % | −10.3 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +1020.0 % | +14.9 % | −19.2 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −14.0 % | — | −19.2 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +5.8 % | — | −12.2 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.9 % | — | −5.7 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +10.1 % | +7.5 % | −10.1 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −5.7 % | −2.2 % | −12.0 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +110.3 % | +16.3 % | −5.8 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −34.1 % | −24.3 % | −39.7 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +233.6 % | +11.9 % | −10.7 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −8.3 % | — | −8.3 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +30.8 % | +15.0 % | −14.0 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −18.4 % | −18.4 % | −23.0 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −51.0 % | −6.9 % | +10.9 % | +26.7 % | +122.6 % |
| 3 y (1168) | −30.8 % | −0.5 % | +10.0 % | +18.3 % | +34.8 % |
| 5 y (1144) | −12.8 % | +3.2 % | +9.4 % | +15.8 % | +28.1 % |
| 10 y (1084) | −1.7 % | +5.4 % | +9.4 % | +14.2 % | +16.7 % |
| 15 y (1024) | +2.1 % | +6.5 % | +9.5 % | +13.6 % | +16.0 % |
| 20 y (964) | +3.5 % | +7.3 % | +9.9 % | +12.9 % | +14.4 % |
| 30 y (844) | +7.4 % | +8.5 % | +10.1 % | +11.5 % | +13.0 % |
How it behaved in history
- 1985-2008 Yale era. Yale endowment under Swensen compounded at double-digit rates; the retail six-class model was written in 2005 as a liquid translation of this approach. en.wikipedia.org
- 2007-2009 financial crisis. Yale lost 24.6% in fiscal 2009. The retail model, with 20% REITs and 70% equity-like assets, fell about as much as a conventional portfolio in a HumbleDollar backtest, mostly due to REITs. news.yale.edu
- 2010 onward. Fiscal 2010 return of the Yale endowment was 8.9% after the 2009 loss. news.yale.edu
Published results (by others)
- Yale endowment grew from about 1.3 billion dollars in 1985 to 31.2 billion in 2021; average return 12.4% a year over the 30 years to 2020 (1985-2021): 12.4% annualised over 30 years to 2020 en.wikipedia.org
- Yale endowment net investment return in fiscal 2009 and ten-year average (FY2009; ten years to June 2009): -24.6% in FY2009; 11.8% annualised over ten years news.yale.edu
- In a 2005-2018 simulation (Sept 2005 - July 2018, annual rebalancing) the Swensen retail portfolio had the highest compound annual growth rate of the compared portfolios, with higher-than-benchmark volatility (Sept 2005 - July 2018): highest CAGR among compared portfolios (numbers only in charts) www.wealthmanagement.com
What we could not verify
- Maturity of the Treasury sleeve in the book (intermediate vs long) was not confirmed from the book.
- The rebalancing frequency Swensen recommends was not found.
- HumbleDollar article could not be fetched (bot check); its backtest numbers are not recorded.
- Whether the date of the interview revision is March/April 2009 (Yale Alumni Magazine) comes from a blog's statement only.
- Bogleheads wiki page returned 403.
Sources
- en.wikipedia.org
https://en.wikipedia.org/wiki/David_F._Swensen - mymoneyblog.com
https://mymoneyblog.com/david-swensens-updated-model-asset-allocation.html - mymoneyblog.com
https://mymoneyblog.com/model-portfolio-7-unconventional-success-by-david-swensen.html - www.wealthmanagement.com
https://www.wealthmanagement.com/equities/bernstein-swensen-browne-or-swedroe - news.yale.edu
https://news.yale.edu/2009/10/02/despite-endowment-loss-yale-performs-creditably-difficult-environment - en.wikipedia.org
https://en.wikipedia.org/wiki/Yale_Investments_Office - humbledollar.com
https://humbledollar.com/?p=13602
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.