Yale's Money Guru Shares Wisdom with Masses (2024)

David Swensen stands on the trading floor at his offices at Yale, where he and his team of 20 analysts work. Chris Arnold, NPR hide caption

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Chris Arnold, NPR

Where to Put Your Money

The chart below represents Swensen's basic formula for creating an investment portfolio likely to give you good returns while still managing risk:

• Domestic Equity (30 percent): Refers to stocks in U.S.-based companies listed on U.S. exchanges.
• Emerging Market Equity (5 percent): Refers to stocks from emerging markets around the world, such as Brazil, Russia, India and China.
• Foreign Developed Equity (15 percent): Refers to stocks listed on major foreign markets in developed countries, such as the United Kingdom, Germany, France and Japan.
• Real Estate Investment Trusts (20 percent): Refers to stocks of companies that invest directly in real estate through ownership of property.
• U.S. Treasury Notes and Bonds (15 percent): These are fixed-interest U.S. government debt securities that mature in more than one year. Notes and bonds pay interest semi-annually. The income is only taxed at the federal level.
• U.S. Treasury Inflation-Protection Securities, or TIPS (15 percent): These are special types of Treasury notes that offer protection from inflation, as measured by the Consumer Price Index. They pay interest every six months and the principal when the security matures.

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Yale University recently announced a 23 percent return on its investments, swelling its endowment to a whopping $18 billion. The man behind that investment success is David Swensen, one of the most gifted investors in the world. He's made an average 16 percent annual return over 21 years — better than any portfolio manager at any other university.

Nobody has numbers that good. Not at Harvard, Princeton, Stanford, or any foundation or pension fund; Swensen consistently beats them all. And recently, Swensen has become passionate about trying to teach individual investors how best to save for retirement.

For a long time, universities invested in a plain-vanilla mix of stocks and bonds. Swensen helped change that. He has built a portfolio with stakes in venture capital funds, real-estate partnerships, emerging market stocks and scores of small, specialized investment outfits. Any tiny market movement changes the balance of the whole thing.

So how does Swensen keep track of it all?

"I have a calculator," Swensen says with a chuckle. "And then I talk to one of my colleagues, who executes the trade. So it's decidedly low-tech."

He also has a nice computer with two flat-panel monitors on his desk, which sits in the middle of the small trading floor where he and his team of 20 analysts work. The monitors show the value of Yale's investments by category. Swensen says he could use automated software to help him balance the numbers each day, but that would take all the fun out of it.

The Billion-Dollar Man

Swensen, 52, is an unassuming, affable Midwesterner. He could easily pass for a friendly high-school math teacher or a town pastor. But he makes more money than they do. Yale pays Swensen $1.3 million a year. That sounds impressive until you realize that, with his track record, if Swensen started his own hedge fund, he could earn $50 million to $100 million a year.

But Swensen would rather work for Yale, where he earned a Ph.D. in economics. He spent five years on Wall Street and then, 21 years ago, agreed to return to lead Yale's investment office.

"I had a great time on Wall Street, but it didn't satisfy my soul," he says. "And I've always loved educational institutions. My father was a university professor, my grandfather was a university professor. So there must be something in the genes."

Swensen teaches a course at Yale in which he airs his unorthodox view of the basics of a well-diversified portfolio. He argues that, by owning not only stocks and bonds but also holdings in real estate, timber, oil and gas, and other investments, you can get strong returns with less overall risk.

A few years ago, he decided he wanted to spread his message to more people. So he wrote a book, Unconventional Success, with advice for the average investor. Swensen warns there's no "one-size-fits-all" approach to investing. But if you want to follow his advice, he shares some basic tips below.