Harvard doesn’t Beat the Market

The Wall Street Journal recently (September 10, 2010) reported that Harvard University’s endowment fund posted a return of 11% for the 12 month period ending June 30, 2010. Harvard’s endowment, at $27.4 billion, is the largest college endowment.

Harvard manages the endowment internally through the Harvard Management company. The team managing the endowment is prominent in the endowment community for its positions in real estate, private equity and venture capital.

The median return for large endowments for the period was 12.3% according to Wilshire Associates. The Dow Jones Industrial Average returned 18.9% in this period. A portfolio of 60% stocks and 40% bonds would have outperformed Harvard’s endowment with a return of 12.6%.

I would add that the 60-40 portfolio would have undoubtedly taken on much less risk.

This is yet another piece of evidence that suggests that attempts to beat the market are fraught with risk. In addition they are burdened with significant expenses. The Harvard Management Company provides compensation that is comparable to that of the leading Wall Street money management firms.

The most intelligent way for individual investors to manage their portfolios is through low-cost, passive investments.