The Simple Alternative
Research Roundtable Publication
Where should we go from here?
This is a question often asked in both life and investing.
Should we maintain a steady course or should we change?
Investors should consider new thoughts and ideas for sure, but we often find that deviating from a steady course increases complexity.
Is it worth it or should we keep it simple?
We recently wrote about this, asking this question: What Needs to Change?
In our piece, we summarized research, which showed that many of the calls for added complexity and change have failed to deliver on their promises of increased diversification and increased returns.
At the end, we also provided links to a comparative analysis that we have updated each year. It highlights how a simple portfolio of index funds has performed as compared to top performing endowments over multiple, rolling 10-year periods.
In keeping with our annual tradition, below are updates based on the latest performance rankings and allocations of endowments and foundations from the National Association of College and University Business Officers (NACUBO).
Like before, the charts illustrate that by simply allocating in a similar manner to endowments (reports show that they tend to have at least 70% allocated to equity investments) and then implementing each asset class with index funds that are rebalanced back to targets once a year, investors could have consistently produced performance that ranked in the top quartile of all U.S. endowments (now 11 out of 11 rolling ten-year periods).
In providing links to our previous pieces and posting these new rankings, we are not suggesting that simple index portfolios are the correct solution for everyone. Every investor has different objectives and some unique valued added strategies exist.
As we wrote in a piece with Joachim Klement, we are just trying to be “more candid that the odds aren’t that great” when it comes to adding value through the implementation of complex strategies.
Warren Buffett once said this:
“Investing is simple, but not easy.”
Understanding how hard it is to keep-it-simple and resist calls for change, we turn Buffett’s quote around a little…
It is not easy to be simple.
Life can be complex and the best path forward can require hard work, but how about this…
Rather than hard work translating into more complex solutions, maybe we should work harder on being simple.
Related Reading:
Transparency, Simplicity and Peace of Mind® – Preston McSwain
What Needs to Change? – Tommi Johnsen, PhD
Are Selectors Good At Selecting? – Elisabetta Basilico, PhD, CFA
How to Actively Add Value – Joachim Klement, CFA
Are We Baking Portfolios with Bad Ingredients? – Tommi Johnsen, PhD
The Triumph of Hope Over Experience? – Oliver Binette, CAIA
Are Alternative Funds Prudent for Taxable Investors? – Preston McSwain – Trust & Estates
The Failure of the Endowment Model? – Richard Ennis – Journal of Portfolio Management
NACUBO Endowment Rankings – The National Association of College and University Business Officers
Important Disclosures:
Return Data Sources: NACUBO-Commonfund Study of Endowments and Foundations (NCSE), Morningstar and MPI Software
Past performance does not guarantee or indicate future results.
All data and return calculations are from third party sources. Fiduciary Wealth Partners, LLC does not guarantee the accuracy of any data in this presentation and does not take responsibility for reliance on it. All data and opinions are subject to change at any time.
The returns of the 70/30 Global Balanced Portfolio (GBP) returns are based on the historical results of actual Vanguard index funds, but represent hypothetical returns of the GBP portfolio re-balanced back to the allocations illustrated above once a year on January 1st. GBP returns would be lower if outside investment advisory fees were applied and would change depending on how the funds were implemented and re-balanced. Actual returns might differ and the future returns of the GBP may be higher or lower.
GBP returns assume reinvestment of all distributions at NAV & deduction of fund expenses. 10-year returns are annualized.
This complete document is for informational purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it.
Smaller Is Better The Simple Alternative – Keeps On Winning 
Perspectives of a Trillion Dollar Investor – Our Conversation with Richard Ennis