Weekly Update #133: A diversified portfolio is key to weathering bull and bear markets

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Hello Investors,
 
What does your portfolio look like? How about Yale's?
Fresh off the worst January since 2009 for the S&P 500 (down 5.1%), we felt it a prudent time to revisit asset allocation.
 
Asset allocation is simply a summary of where your money is being invested. A typical affluent investors' mix would typically include:
  • Stocks
  • Bonds
  • Cash
  • Alternatives

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.

 
Nat Disston walks through the process of setting up a self-directed IRA (individual retirement account) to invest in various alternative asset classes.
 
A week after streaming music company Deezer announced that it had raised another $109 million from existing investors, news has leaked out that its bigger rival Spotify is raising again, too.
 
You’ve seen the headlines; you know that over the last couple of years, a growing number of startups has gone public at valuations below where they were valued as privately held companies (or sunk past them quickly).
 
Mattermark digs into the data and takes a look at why recent IPOs are performing as they are.
 
Redpoint Ventures' Mahesh Vellanki discusses the ongoing decline in the stock market and how it will effect startup valuations
 
Thanks,
Phil Haslett | Founder + Head of Investments | EquityZen 
 
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