John Kimelman writing in has a Q&A session with David Swensen, Chief Investment Officer of Yale University’s endowment fund. Swensen’s book, Unconventional Success: A Fundamental Approach to Personal Investment is receiving wide exposure in the press.

The theme of the Q&A focuses on Swensen’s belief that individual investors should not attempt to choose active managers, rather they should focus on a diversified portfolio of low-cost, index funds. An excerpt:

Q: It’s pretty well known that most of the variance in investment performance — 90% or more — can be explained by basically broad asset allocation decisions rather than by individual stock and bond selection. Why is it, then, that so many investors still focus on picking the right stocks and bonds?
A: Because it’s fun. Individuals systematically get it wrong and whether it’s because it’s exciting to pick individual stocks or try and find a hot mutual fund or because they are conditioned to do that, who knows?

The article also includes a handy table with Swensen’s target portfolio for individuals:

  • U.S. stocks 30%
  • Foreign stocks (developed) 15%
  • Foreign stocks (emerging) 5%
  • Real estate 20%
  • U.S. Treasury bonds 15%
  • Inflation-protected Treasuries 15%