******
- Verified Buyer
I’ve had Unconventional Success by David F. Swensen on my shelf for five years, but it took me a while to finish. The book is somewhat dense and challenging, yet it offers valuable insights, particularly about the effects of drawdown on a portfolio. Swensen, Yale’s CIO for 36 years, managed to achieve an impressive 12% annual return during his tenure.One key takeaway is that while the S&P 500 generally outperforms many strategies, certain portfolios can do better overall by minimizing drawdowns. Swensen emphasizes several principles that are common in investment literature:Equities Should Dominate: Despite being riskier, equities offer higher long-term returns.Passive Investing Over Active Management: Costs significantly impact your portfolio, so minimize them.Diversification Is Essential: A portfolio solely composed of equities will suffer from severe drawdowns, which can take years to recover from. A well-balanced portfolio mitigates this risk.Avoid Market Timing: Base your strategy on long-term thinking.Rebalancing Is Crucial: Regularly sell overperforming assets and buy underperforming ones.Consider Tax Implications: Be aware of the tax consequences when buying or selling assets.Stay Disciplined: Don’t let emotions dictate your investment decisions.Swensen’s Model PortfolioSwensen’s recommended allocation includes:U.S. Equities: 30%International Developed Market Equities: 15%Emerging Market Equities: 5%REITs: 20%U.S. Treasury Bonds: 15%TIPS: 15%Hypothetical PortfoliosI compiled and backtested several hypothetical portfolios based on Swensen’s principles. While most failed to outperform the S&P 500 over a 20-year period, one aggressive portfolio did manage to do so, primarily due to its better handling of drawdowns during the 2008-2009 recession.Conservative Portfolio: $45,293 Conservative B Portfolio: $38,916Moderate Portfolio: $54,785 Moderate B Portfolio: $60,839Aggressive Portfolio: $64,137 Aggressive B Portfolio: $93,856S&P 500 (SPY): $80,315Portfolio AllocationsOriginal PortfoliosConservative Portfolio:25% VTI, 10% EFA, 5% VWO, 15% VNQ, 25% IEF, 20% TIPModerate Portfolio:30% VTI, 15% EFA, 10% VWO, 15% VNQ, 15% IEF, 15% TIPAggressive Portfolio:40% VTI, 20% EFA, 15% VWO, 10% VNQ, 10% IEF, 5% TIPB-Series PortfoliosConservative B Portfolio:20% VTSAX, 10% VEA, 5% VWO, 15% VNQ, 25% VBTLX, 25% VIPSXModerate B Portfolio:25% VTSAX, 15% VEA, 10% VWO, 20% VNQ, 15% VBTLX, 15% VIPSXAggressive B Portfolio:35% VTSAX, 20% VEA, 10% VWO, 20% VNQ, 10% VBTLX, 5% VIPSXBenchmarkS&P 500 (SPY)While beating the S&P 500 over the long term is challenging, Swensen’s strategies offer a solid foundation for those looking to manage risk and optimize returns. For most investors, simply investing in the S&P 500 might be the best approach, but Swensen shows there are ways to potentially outperform through strategic portfolio management.Annual Returns (2003 – 2023)2003Portfolio ReturnConservative Portfolio 18.34%Moderate Portfolio 19.90%Aggressive Portfolio 21.45%Conservative B 13.39%Moderate B 18.30%Aggressive B 23.95%S&P 500 (SPY) 28.18%2004Portfolio ReturnConservative Portfolio 11.55%Moderate Portfolio 12.49%Aggressive Portfolio 14.08%Conservative B 7.42%Moderate B 19.80%Aggressive B 21.28%S&P 500 (SPY) 10.70%2005Portfolio ReturnConservative Portfolio 8.62%Moderate Portfolio 10.46%Aggressive Portfolio 12.24%Conservative B 7.57%Moderate B 10.68%Aggressive B 11.77%S&P 500 (SPY) 4.83%2006Portfolio ReturnConservative Portfolio 18.71%Moderate Portfolio 21.07%Aggressive Portfolio 23.19%Conservative B 19.47%Moderate B 22.66%Aggressive B 26.71%S&P 500 (SPY) 15.85%2007Portfolio ReturnConservative Portfolio 6.92%Moderate Portfolio 7.64%Aggressive Portfolio 9.07%Conservative B 5.04%Moderate B 6.09%Aggressive B 7.82%S&P 500 (SPY) 5.14%2008Portfolio ReturnConservative Portfolio -24.53%Moderate Portfolio -27.55%Aggressive Portfolio -31.46%Conservative B -24.30%Moderate B -27.57%Aggressive B -33.20%S&P 500 (SPY) -36.81%2009Portfolio ReturnConservative Portfolio 22.78%Moderate Portfolio 25.46%Aggressive Portfolio 27.59%Conservative B 26.79%Moderate B 33.32%Aggressive B 39.89%S&P 500 (SPY) 26.37%2010Portfolio ReturnConservative Portfolio 14.65%Moderate Portfolio 15.73%Aggressive Portfolio 16.57%Conservative B 12.81%Moderate B 18.72%Aggressive B 23.66%S&P 500 (SPY) 15.06%2011Portfolio ReturnConservative Portfolio 5.33%Moderate Portfolio 3.66%Aggressive Portfolio 3.92%Conservative B 3.07%Moderate B 4.50%Aggressive B 0.33%S&P 500 (SPY) 1.89%2012Portfolio ReturnConservative Portfolio 14.20%Moderate Portfolio 14.95%Aggressive Portfolio 16.05%Conservative B 11.49%Moderate B 13.46%Aggressive B 19.45%S&P 500 (SPY) 15.99%2013Portfolio ReturnConservative Portfolio 10.62%Moderate Portfolio 14.34%Aggressive Portfolio 16.07%Conservative B 10.61%Moderate B 12.44%Aggressive B 22.27%S&P 500 (SPY) 32.31%2014Portfolio ReturnConservative Portfolio 8.49%Moderate Portfolio 10.03%Aggressive Portfolio 11.11%Conservative B 7.99%Moderate B 11.00%Aggressive B 13.04%S&P 500 (SPY) 13.46%2015Portfolio ReturnConservative Portfolio -1.37%Moderate Portfolio -2.23%Aggressive Portfolio -3.02%Conservative B -1.60%Moderate B -1.42%Aggressive B -2.27%S&P 500 (SPY) 1.25%2016Portfolio ReturnConservative Portfolio 7.71%Moderate Portfolio 9.56%Aggressive Portfolio 10.96%Conservative B 7.62%Moderate B 8.03%Aggressive B 12.17%S&P 500 (SPY) 12.00%2017Portfolio ReturnConservative Portfolio 13.75%Moderate Portfolio 18.11%Aggressive Portfolio 21.11%Conservative B 12.78%Moderate B 17.42%Aggressive B 24.71%S&P 500 (SPY) 21.70%2018Portfolio ReturnConservative Portfolio -6.43%Moderate Portfolio -8.74%Aggressive Portfolio -11.04%Conservative B -6.69%Moderate B -7.04%Aggressive B -10.27%S&P 500 (SPY) -4.56%2019Portfolio ReturnConservative Portfolio 21.73%Moderate Portfolio 23.58%Aggressive Portfolio 26.23%Conservative B 19.53%Moderate B 21.70%Aggressive B 29.21%S&P 500 (SPY) 31.22%2020Portfolio ReturnConservative Portfolio 10.83%Moderate Portfolio 13.58%Aggressive Portfolio 15.56%Conservative B 10.56%Moderate B 11.04%Aggressive B 14.82%S&P 500 (SPY) 18.37%2021Portfolio ReturnConservative Portfolio 12.71%Moderate Portfolio 16.57%Aggressive Portfolio 20.73%Conservative B 14.87%Moderate B 17.24%Aggressive B 23.33%S&P 500 (SPY) 28.75%2022Portfolio ReturnConservative Portfolio -17.25%Moderate Portfolio -18.32%Aggressive Portfolio -19.45%Conservative B -17.07%Moderate B -17.58%Aggressive B -19.11%S&P 500 (SPY) -18.17%2023Portfolio ReturnConservative Portfolio 14.22%Moderate Portfolio 15.87%Aggressive Portfolio 17.73%Conservative B 13.49%Moderate B 15.92%Aggressive B 17.73%S&P 500 (SPY) 26.19%
