1-year | 5-year | 10-year | |
Median Public Pension Fund | 21.6% | 4.7% | 5.7% |
Median College Endowment | 19.8% | 4.6% | 5.5% |
Simulated Index Fund Returns* | 22.3% | 5.8% | 6.2% |
Perhaps a difference of 0.5% may not seem like much, but it is HUGE when one considers the dollar amounts involved. A difference of just 0.5% per year over 10 years amounts to:
for a $100,000 401(k) the difference is $8,500
for a $1 million IRA the difference is $85,000
for a $1 billion endowment the difference is $85 million
for a $70 billion pension fund the difference is a staggering $6 Billion (yes, that's Billion - with a "B").
* My simulation includes annual re-balancing of Vanguard index funds using a simple 60/40 stock/bond recipe that comes from page 34 of my book, "The Rollover IRA Cookbook." The above returns are all as of 6/30/2011. Here's the simple recipe that beat 75% of all college endowment funds:
30% Vanguard 500 Index Fund
10% Vanguard Mid-Cap Index Fund
10% Vanguard Small-Cap Index Fund
10% Vanguard International Stock Index Fund
20% Vanguard Inflation-Protected Securities Fund
10% Vanguard Intermediate-Term Bond Index Fund
10% Vanguard Long-Term Bond Index Fund
Excellent!
ReplyDeleteAs a Brit living in the States and interested in investing, this whole concept of University "endowments" is fascinating to me. Its mind blowing that a Harvard has an endowment of 30 billion dollars, whilst even our best Universities would be lucky to have endowments of a tenth that size. It is equally amazing that endowments here rely on complex investments in hedge funds private equity when they should be well aware that the entire 2 and 20 model provides little or no value-added. Supposedly some of the brightest people work at these places, yet they seem like they are quite ignorant about some basic investing concepts like efficient markets.
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