What does your portfolio look like? How about Yale's?
Asset allocation is simply a summary of where your money is being invested. A typical affluent investors' mix would typically include:
Thanks to data from Personal Capital (a portfolio management tool for retail individuals), the mass affluent investor class, aged 35-44, has the following asset allocation:
You'll notice that there's only about 5% of the portfolio going to Alternatives (and most of this is probably through real estate).
But what about the big institutions? How do the pension funds and university endowments, responsible for billions of dollars, allocate their assets?
Fortunately, Yale shares the details of its $25.6 billion endowment's asset allocation (and performance). Yale's endowment has outpaced domestic equities and bonds over the last ten years, averaging a 10% return. Here's their allocation breakdown:
Note the exposure to alternative assets:
- Absolute Return, aka Hedge Funds (21%)
- Leveraged Buyouts, aka Private Equity (16%)
- Venture Capital (14%)
That's 51% of Yale's portfolio dedicated to alternatives. Meanwhile, affluent investors on Personal Capital are only allocating 5%.
I highlight this because the rough start in public equities in 2016 should serve as a reminder that a diversified portfolio (like Yale's) can weather the bull and bear markets (reminder: Yale's 10-year performance includes the financial crisis of 2008, when the S&P dropped 37%). Platforms like EquityZen are working hard to offer retail investors the chance to mimic Yale's asset allocation, by providing access to Venture Capital and other alternative assets in retail bite sizes.