DR 163: The David Swensen Unconventional Success Portfolio

Unconventional SuccessDavd Swensen manages more than $20 billion in assets as the Chief Investment Officer of the Yale endowment fund. Several years ago he distilled his investment knowledge and experience into a book, Unconventional Success, for the average investor. The book is an excellent guide to low cost, passive investing. One of the many great aspects of the books is Swensen’s “Framework for Investing Success.”

The framework is a simple investment portfolio. The portfolio is well diversified and equity oriented, ideal for any investor. Here’s his recommended portfolio:

  • 30%–U.S. Equities
  • 15%–Foreign Developed Markets
  •   5%–Emerging Markets
  • 20%–U.S. REITs
  • 15%–U.S. Treasuries
  • 15%–TIPS

As Swensen points out, asset allocation is as much art as it is science. His framework is not intended to be the one and only investment portfolio, but rather a starting point. In my case, for example, I have less in REITs (10%), more in emerging markets (10%), and less in bonds (25%).

Using Swensen’s framework, however, I put together a portfolio with specific mutual funds and ETFs from a variety of mutual fund companies and even the TSP (Thrift Savings Plan).

Vanguard

Asset ClassAllocationVanguard FundInvestor SharesERAdmiral SharesER
U.S. Equities30%Vanguard Total Stock Market Index Fund Investor SharesVTSMX0.17VTSAX0.05
Foreign Developed Equity15%Vanguard Developed Markets Index Fund Investor SharesVDVIX0.20VTMGX0.09
Emerging Markets5%Vanguard Emerging Markets Stock Index Fund Investor SharesVEIEX0.33VEMAX0.15
U.S. REITs20%Vanguard REIT Index Fund Investor SharesVGSIX0.24VGSLX0.10
U.S. Treasuries15%Vanguard Intermediate-Term Treasury Fund Investor SharesVFITX0.20VFIUX0.10
TIPS15%Vanguard Inflation-Protected Securities Fund Investor SharesVIPSX0.20VAIPX0.10
Weighted Average Expense Ratio0.210.09

Fidelity

Asset ClassAllocationFidelity FundInvestor ClassERAdvantage ClassER
U.S. Equities30%Fidelity Spartan® Total Market Index Fund Investor ClassFSTMX0.10FSTVX0.05
Foreign Developed Equity15%Fidelity Spartan® International Index Fund Investor ClassFSIIX0.20FSIVX0.12
Emerging Markets5%Fidelity Spartan® Emerging Markets Index Fund Investor ClassFPEMX0.31FPMAX0.20
U.S. REITs20%Fidelity Spartan® Real Estate Index Fund Investor ClassFRXIX0.23FSRVX0.09
U.S. Treasuries15%Fidelity Spartan® Intermediate Treasury Bond Index Fund Investor ClassFIBIX0.20FIBAX0.10
TIPS15%Fidelity Spartan® Inflation-Protected Bond Index Fund Investor ClassFSIQX0.20FSIYX0.10
Weighted Average Expense Ratio0.180.09

iShares

Asset ClassAllocationiSharesTickerER
U.S. Equities30%iShares Russell 3000 Index (ETF)IWV0.20
Foreign Developed Equity15%iShares MSCI EAFE ETFEFA0.33
Emerging Markets5%iShares Core MSCI Emerging Markets ETFIEMG0.18
U.S. REITs20%iShares Dow Jones US Real Estate (ETF)IYR0.45
U.S. Treasuries15%iShares Barclays 7-10 Year Trasry Bnd FdIEF0.15
TIPS15%iShares Barclays TIPS Bond Fund (ETF)TIP0.20
Weighted Average Expense Ratio0.26

T. Rowe Price

Asset ClassAllocationT. Rowe PriceTickerER
U.S. Equities30%T. Rowe Price Total Equity Market Index FundPOMIX0.35
Foreign Developed Equity15%T. Rowe Price International Equity Index FundPIEQX0.50
Emerging Markets5%T. Rowe Price Emerging Markets Stock FundPRMSX1.25
U.S. REITs20%T. Rowe Price Real Estate FundTRREX0.79
U.S. Treasuries15%T. Rowe Price U.S. Treasury Intermediate FundPRTIX0.51
TIPS15%T. Rowe Price Inflation Protected Bond FundPRIPX0.50
Weighted Average Expense Ratio0.55

Charles Schwab

Asset ClassAllocationSchwabInvestor ClassER
U.S. Equities30%Schwab Total Stock Market Index Fund®SWTSX0.09
Foreign Developed Equity15%Schwab International Index Fund®SWISX0.19
Emerging Markets5%Schwab Emerging Markets Equity ETFSCHE0.14
U.S. REITs20%Schwab Fundamental Global Real Estate Index FundSFREX0.49
U.S. Treasuries15%Schwab Intermediate-Term Bond Fund™SWIIX0.45
TIPS15%Schwab® Treasury Inflation Protected Securities Index FundSWRSX0.19
Weighted Average Expense Ratio0.26

Thrift Savings Plan

The TSP is one of the best retirement plans available. Its fees approach zero. Yet it doesn’t offer exposure to certain asset classes, such as REITs and emerging markets. For that reason, I had to get a bit creative with this portfolio.

Asset ClassAllocationTSP ER
U.S. Equities30%C Fund.029
Foreign Developed Equity15%I Fund.029
Emerging Markets5%I Fund.029
U.S. REITs20%S Fund.026
U.S. Treasuries15%F Fund.039
TIPS15%F Fund.039
Weighted Average Expense Ratio.031
Topics: Investing

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