My Endowment Model: Endowment Approach Portfolios for your Household
When the equity markets are going up, everything is great. But when they go down, they can certainly test an investor’s tolerance for volatility. In our unique and thoughtful style of portfolio construction, we often refer to the college endowment allocations (Yale, Harvard, Stanford) for portfolio design concepts. While most traditional investment institutions will recommend some blend of stocks and bonds based on your investor profile (age, risk, objectives, etc.), they are often limited in their investment opportunities for their clients. It’s your hard-earned money and you want it to grow and you want to sleep at night. If you take a look at what the college endowments, high net worth family offices, pensions, institutions, and others that have very large amounts of money invested, they are not simply in stocks and bonds. As you probably know, they are in direct real estate, direct private equity and debt, venture capital, professional managed strategies and hedge funds, natural resources, and more. As a well-known example, you can review Yale University’s most recent Endowment Update. If the brightest minds that were hired to manage billions of dollars have only a fraction of their investable assets in stocks and bonds, why should you?
We distinguish ourselves from many others in our industry with our portfolio design, as we look to emulate the large endowment models for our clients and their households. We still utilize professionally managed strategies in stocks and bonds, but we also look to complement the liquid and often more volatile portion of the portfolio with direct real estate, private lending, private equity, and more. Of course liquidity needs, risk tolerance, and your objectives will determine how the portfolio is custom tailored to you. The university endowments and high net worth family offices don’t have to be the only ones that can invest like this. It’s the 21st century and you can too – – which is why we pride ourselves on being a family office for every sized family.
While the traditional stock market has proven to offer a great average return, it can be very challenging during the retracements, structural and bear market cycles. As you may have personally experienced, volatility creates panic and emotional decisions that often causes investors to buy high and sell low. While you do understand that, living through it is another story — which is why it’s good to hire a professional, who can also act as a coach at times. Selling at the wrong time is damaging to your long-term success. If we can reduce the overall volatility of the portfolio with non-correlated “alternative” investments, perhaps the equity allocation will be left untouched during the difficult periods.
Our goal is to design an asset allocation that you can call “My Endowment Model.” Your asset allocation could include the traditional stocks and bonds and other market-based investments. But it may also include direct real estate for growth and/or income, private equity for growth and/or income, direct lending and debt for attractive income, hedging strategies that may go up when the markets go down, tactical strategies that ideally go to cash when the markets go down, and more.
To further understand this concept, please refer to this book or request a copy from us: Wise Money: Using the Endowment Investment Approach to Minimize Volatility and Increase Control, by Daniel Wildermuth
For more information, please contact Scott Brooks at 949.545.6500.