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Tuesday, July 22, 2014

Are You Beating the College Endowment Funds?

The big college endowments are staffed, presumably, with the best and the brightest investment talent--graduates, in fact, of the top business schools in the nation.  They invest in esoteric sectors of the market, use sophisticated tactical allocation strategies, and have access to CEOs and top strategists in the investment world.  Surely they outperform little old you and me?  Not so fast.  Check out this table of 5-year average annualized returns for the period 7/31/2013 presented in the Morningstar article by John Rekenthaler, "Are 401(k) Funds Second-Rate?":



Harvard
1.7%
Yale
3.3%
Texas
3.4%
Stanford
3.3%
Princeton
4.2%
MIT
5.3%
Michigan
3.3%
Columbia
6.8%
Pennsylvania
5.4%
Notre Dame
4.3%


The average return of the endowments over the period was 4.1%.  Get this:  the Vanguard Target Retirement 2030 Fund returned 5.2%.  No multi-million dollar salaries, no fancy models, no big time MBAs.  If you checked the box at your 401(k) that automatically invested in a Target Fund, you very likely did better than the largest endowment funds!

This is just another instance of so-called "lazy portfolios" tending to outperform 7 out of 10 active managers over the long term.

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