Meaningless jangly emotive associations around the name Yale. What does funding student tuition at Yale have in common with Yale funding its own endowment, other than faint echoes of
and money-green = Ivy green?
Point #1: The article is talking about
short and medium-term college savings and argues you should not use a retirement savings models. But one of the whole points of the Yale model is that college endowments have a
longer time horizon than an individual investor. Yale can tolerate illiquid investments that may take decades to pay off, and certainly cannot be counted on to pay off at any particular time.
She suggests over and over that you seek to earn a "liquidity premium." You are going to put money into things that pay off at irregular dates in the distant future,
as a way to meet eight tuition bills that are going to come due on specific dates. You are will get one of those bills in, say, fall of 2035. Are you going to ask the Yale bursar to wait a few years because timber prices are down?
If the retirement saving model isn't appropriate for college savings, then the Yale model is
less appropriate.
Point #2: After talking about what Yale invests in, much of which are unavailable to an ordinary "mass affluent" investor, the writer then goes on to say:
- after telling us how great private equity is, you can't invest in it any way. So why bother telling us what a great inflation hedge it is?
- You can "tap into" real estate? A couple of rental houses in one city are comparable to diversifed holdings of hundreds of commercial real estate properties?
- Investing in small businesses run by family and friends is the same thing as venture capital.
This is plumb loco. Shuli Ren does not give us
any statistics on the risk and return of investing in small businesses run by family and friends.
Point #3: Swensen IMHO was innovative, remarkably successful, possibly a genius. However, it has been widely noted that although
he was able to obtain stellar results for
Yale, other university endowments have not been able to replicate his success by following seemingly similar strategies:
Ivy League endowments underperform 60/40 portfolio again.
If Dartmouth, Harvard, Yale, Princeton, Columbia, the University of Pennsylvania and Cornell failed to match a 60/40 portfolio by following the "Yale model," what makes you think you can do any better, using ownership in a sister-in-law's nail salon as your private equity?
But you
can be virtually certain of performing as well as a 60/40 portfolio simply by buying the Vanguard Balanced Index Fund.
The kindest thing I can say about this article is that you will find many discussions in the forum about whether to supplement a standard Boglehead portfolio by adding an allocation to a REIT fund, such as the Vanguard REIT Index Fund. But of course that's just
a kind of stock, not direct ownership of commercial real estate. If you happen to be a college
professor at--let's keep the silly theme going--Yale, then you may have access to the TIAA Real Estate fund, which actually does represent direct ownership of commercial real estate.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.