Maybe not better but the rich colleges may be the guide to the way we should allocate our investments. You may not have known this, but Yale University has had a consistent run at the markets over the last four years allocating their money in the Yale Endowment Fund.

While we don't always have the assets available to chase these types investments, it might alter the way you view how you allocate your money. This goupr has had returns of 12.2% in 1999, 41% in 2000, 9.2% in 2001 and 0.7% in 2001. For the period ending June 2002, the university was invested in equities (U.S 15.4%, foreign 12.8%, and private 14.4%), bonds (10%), hedge funds (referred to in the report as absolute return, 26.5%), real assets (20.5% such as real estate and even timber) while parking only one percent in cash.

Now you probably don't have access to a hedge fund. You probably consider your house a real estate investment, which by the way, it is not. It may appreciate but it is only an investment if you don't need a place to live. Otherwise, you invest in a home, it is not an investment. The question is how can you allocate your investment money to best mimic their returns.

Allocation is a tricky thing and is based on many factors. Many folks have been easing out of the bond market and into large cap funds as a way to capitalize on the recent tax cuts. Dividend paying stocks tend to be well capitalized companies. This of course doesn't explain why the NASDAQ has moved so rapidly. I believe that the small and mid cap companies and the funds that invest in them will lead us out of this bear market in a big way. If I were to allocate this group in a portfolio they would comfortably occupy 85%. This by way of disclaimer is not a recommendation. The remainder of the portfolio would be left with the risk of the high yield or junk bond market. Sure the yields are off their October highs of 13%, but they still allow a decent amount of return for the risk. What risk remains should be seen well in advance if those bonds are nestled in the arms of a good bond fund.

[ Close Window ]