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> Wealthy individuals have access to investment strategies resemble far more the philosophy of large pension funds than robo-advisors. I know these are naive q

by dap 11y ago

> Wealthy individuals have access to investment strategies resemble far more the philosophy of large pension funds than robo-advisors. I know these are naive questions, but here goes: do those pension funds differ greatly from large university endowments? How do those differ from what one can achieve using a combination of cheap index funds? Ramit Sethi famously recommended an allocation based on David Swensen's experience managing the Yale endowment. You can find index funds to match that reasonably well. How different will that be from what Yale or a pension fund actually does?

lucisferre 11y ago
They have similar goals, capital preservation, consistent cash-flow so they don't deplete the principal. I'm in Canada so examples we often cite are the Canadian Pension Plan (CPP), Ontario Teacher Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS). All of these do a lot of private equity investing and OMERS in particular has invested in a number of Canadian tech companies and IPOs, incuding recently Shopify and Hootsuite. All of them have had quite impressive and consistent results as well. The problem with using public index funds to mimic these managers asset allocations is the higher volatility of publicly traded assets. For example in 2008 widespread panic caused people to sell their mutual funds and flee to cash which widely hold a variety of assets, so all of them suffered. This included publicly traded Real Estate Investment Trusts (REITs). At one point they were selling for 80% of their on paper asset value, which was entirely irrational. Many money managers that typically invested privately in commercial real estate because of that volatility took that opportunity to buy public REITs at a discount. That being said, you can definitely do a decent job of adding asset class diversification with modern ETFs (and the market for these keeps growing). There are now infrastructure ETFs, REITs (Vanguard's REIT is really well priced), covered call ETFs, etc. Just don't expect to get exactly the same results of these managers and expect to have to handle larger volatility. That being said, if you can weather these market movements, and you are saving regularly, volatility can be a good thing, if you can take advantage of lower asset prices with ongoing contribution then that is great.
- dap 11y ago
  Thanks for the details!
- guelo 11y ago
  Taking advantage of big market crashes is difficult when your whole portfolio tanks. I've been wondering about keeping ~10% of my funds in reserver in safe cash-like assets in order to be able to move in when the whole market tanks.
  - vehementi 11y ago
    That still counts as timing the market and is Known to be ineffective. What if the market doesn't tank and you sit in cash for a long time? If it does tank, how will you know when is the true bottom for you to invest your last 10% in? Etc.
  - jldugger 11y ago
    Generally speaking, when stocks fall bond prices rise. In this regime. So if you have a mixed portfolio of assets and bonds, in your scenario you can sell treasury bonds for a profit, and use the proceeds to buy up stocks. If you automate this transaction when your portfolio deviates from a target mix, you will automate a 'sell high, buy low' strategy.

by dap 11y ago

lucisferre 11y ago

They have similar goals, capital preservation, consistent cash-flow so they don't deplete the principal. I'm in Canada so examples we often cite are the Canadian Pension Plan (CPP), Ontario Teacher Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS). All of these do a lot of private equity investing and OMERS in particular has invested in a number of Canadian tech companies and IPOs, incuding recently Shopify and Hootsuite. All of them have had quite impressive and consistent results as well. The problem with using public index funds to mimic these managers asset allocations is the higher volatility of publicly traded assets. For example in 2008 widespread panic caused people to sell their mutual funds and flee to cash which widely hold a variety of assets, so all of them suffered. This included publicly traded Real Estate Investment Trusts (REITs). At one point they were selling for 80% of their on paper asset value, which was entirely irrational. Many money managers that typically invested privately in commercial real estate because of that volatility took that opportunity to buy public REITs at a discount. That being said, you can definitely do a decent job of adding asset class diversification with modern ETFs (and the market for these keeps growing). There are now infrastructure ETFs, REITs (Vanguard's REIT is really well priced), covered call ETFs, etc. Just don't expect to get exactly the same results of these managers and expect to have to handle larger volatility. That being said, if you can weather these market movements, and you are saving regularly, volatility can be a good thing, if you can take advantage of lower asset prices with ongoing contribution then that is great.

dap 11y ago
Thanks for the details!
guelo 11y ago
Taking advantage of big market crashes is difficult when your whole portfolio tanks. I've been wondering about keeping ~10% of my funds in reserver in safe cash-like assets in order to be able to move in when the whole market tanks.
- vehementi 11y ago
  That still counts as timing the market and is Known to be ineffective. What if the market doesn't tank and you sit in cash for a long time? If it does tank, how will you know when is the true bottom for you to invest your last 10% in? Etc.
- jldugger 11y ago
  Generally speaking, when stocks fall bond prices rise. In this regime. So if you have a mixed portfolio of assets and bonds, in your scenario you can sell treasury bonds for a profit, and use the proceeds to buy up stocks. If you automate this transaction when your portfolio deviates from a target mix, you will automate a 'sell high, buy low' strategy.