DR 163: The David Swensen Unconventional Success Portfolio

David 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 book is Swensen’s “Framework for Investing Success.”

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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 Class	Allocation	Vanguard Fund	Investor Shares	ER	Admiral Shares	ER
U.S. Equities	30%	Vanguard Total Stock Market Index Fund Investor Shares	VTSMX	0.17	VTSAX	0.05
Foreign Developed Equity	15%	Vanguard Developed Markets Index Fund Investor Shares	VDVIX	0.20	VTMGX	0.09
Emerging Markets	5%	Vanguard Emerging Markets Stock Index Fund Investor Shares	VEIEX	0.33	VEMAX	0.15
U.S. REITs	20%	Vanguard REIT Index Fund Investor Shares	VGSIX	0.24	VGSLX	0.10
U.S. Treasuries	15%	Vanguard Intermediate-Term Treasury Fund Investor Shares	VFITX	0.20	VFIUX	0.10
TIPS	15%	Vanguard Inflation-Protected Securities Fund Investor Shares	VIPSX	0.20	VAIPX	0.10
Weighted Average Expense Ratio				0.21		0.09

Fidelity

Asset Class	Allocation	Fidelity Fund	Investor Class	ER	Advantage Class	ER
U.S. Equities	30%	Fidelity Spartan® Total Market Index Fund Investor Class	FSTMX	0.10	FSTVX	0.05
Foreign Developed Equity	15%	Fidelity Spartan® International Index Fund Investor Class	FSIIX	0.20	FSIVX	0.12
Emerging Markets	5%	Fidelity Spartan® Emerging Markets Index Fund Investor Class	FPEMX	0.31	FPMAX	0.20
U.S. REITs	20%	Fidelity Spartan® Real Estate Index Fund Investor Class	FRXIX	0.23	FSRVX	0.09
U.S. Treasuries	15%	Fidelity Spartan® Intermediate Treasury Bond Index Fund Investor Class	FIBIX	0.20	FIBAX	0.10
TIPS	15%	Fidelity Spartan® Inflation-Protected Bond Index Fund Investor Class	FSIQX	0.20	FSIYX	0.10
Weighted Average Expense Ratio				0.18		0.09

iShares

Asset Class	Allocation	iShares	Ticker	ER
U.S. Equities	30%	iShares Russell 3000 Index (ETF)	IWV	0.20
Foreign Developed Equity	15%	iShares MSCI EAFE ETF	EFA	0.33
Emerging Markets	5%	iShares Core MSCI Emerging Markets ETF	IEMG	0.18
U.S. REITs	20%	iShares Dow Jones US Real Estate (ETF)	IYR	0.45
U.S. Treasuries	15%	iShares Barclays 7-10 Year Trasry Bnd Fd	IEF	0.15
TIPS	15%	iShares Barclays TIPS Bond Fund (ETF)	TIP	0.20
Weighted Average Expense Ratio				0.26

T. Rowe Price

Asset Class	Allocation	T. Rowe Price	Ticker	ER
U.S. Equities	30%	T. Rowe Price Total Equity Market Index Fund	POMIX	0.35
Foreign Developed Equity	15%	T. Rowe Price International Equity Index Fund	PIEQX	0.50
Emerging Markets	5%	T. Rowe Price Emerging Markets Stock Fund	PRMSX	1.25
U.S. REITs	20%	T. Rowe Price Real Estate Fund	TRREX	0.79
U.S. Treasuries	15%	T. Rowe Price U.S. Treasury Intermediate Fund	PRTIX	0.51
TIPS	15%	T. Rowe Price Inflation Protected Bond Fund	PRIPX	0.50
Weighted Average Expense Ratio				0.55

Charles Schwab

Asset Class	Allocation	Schwab	Investor Class	ER
U.S. Equities	30%	Schwab Total Stock Market Index Fund®	SWTSX	0.09
Foreign Developed Equity	15%	Schwab International Index Fund®	SWISX	0.19
Emerging Markets	5%	Schwab Emerging Markets Equity ETF	SCHE	0.14
U.S. REITs	20%	Schwab Fundamental Global Real Estate Index Fund	SFREX	0.49
U.S. Treasuries	15%	Schwab Intermediate-Term Bond Fund™	SWIIX	0.45
TIPS	15%	Schwab® Treasury Inflation Protected Securities Index Fund	SWRSX	0.19
Weighted Average Expense Ratio				0.26

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 Class	Allocation	TSP	ER
U.S. Equities	30%	C Fund	.029
Foreign Developed Equity	15%	I Fund	.029
Emerging Markets	5%	I Fund	.029
U.S. REITs	20%	S Fund	.026
U.S. Treasuries	15%	F Fund	.039
TIPS	15%	F Fund	.039
Weighted Average Expense Ratio			.031

DR 163: The David Swensen Unconventional Success Portfolio

Editor's Note

Vanguard

Fidelity

iShares

T. Rowe Price

Charles Schwab

Thrift Savings Plan

Rob Berger

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