The Fighting Irish have something to cheer about this week. Don’t laugh. Sure, Notre Dame emerged from this weekend’s showdown with Purdue 0-5, but when it comes to its college endowment, the Irish are right near the top of the ranks in the endowment big 10.
Yes, Regis Philbin, you should be smiling. This season, your alma mater is walking away with prime honors in the investing arena, with an extra $1.4 billion in its coffers. In fact, Notre Dame came in third on the latest investment return gridiron, with its endowment up a stellar 25.9 percent. “Take that, Reege!” The S&P 500 is up just 18 percent gain over the same amount of time.
And that’s no easy featespecially since Notre Dame fund manager Scott Malpass is prohibited from buying stocks in some 350 companies that Roman Catholic bishops have cited for non-compliance with Catholic teachings.
But it wasn’t just the Irish taking home the gold last year, once again Yale’s endowment run by David Swensen grabbed top honorswith a 28 percent return and returns of 17.8 percent on average over the last decade. Duke, Michigan, Virginia, Northwestern and Amherst also managed to pass the 25 percent goal line.
Here’s a crib sheet if you want to invest like the nation’s top universities:
Lesson #1: Unlike most hedge funds (or even many mutual funds), endowment managers are the ultimate long-term investors. By their very mandate, university endowments cannot tap into their principlethey don’t swing for the fences one year and hope to make it up by using a lot of leverage the next. A good rule of thumb for most individual investors to live by.
Lesson #2: Successful endowments minimize their exposure to bonds. This may sound a bit scary and it flies in the face of advice given in many personal finance books. But as David Swensen of Yale has shown, diversifying out of bonds into alternative investments is the best way to maximize your after-inflation returns.
Lesson #3: Pick your alternative investments carefully, but don’t chicken out. Again, this may sound risky, but so too is keeping all your eggs in a basket of dollar-denominated U.S. stocks. And, with the proliferation of Exchange Traded Funds (ETFs) it’s easy to earmark a small part of your portfolio for investments in foreign stocks, currencies, gold, oil and other commodities. Limiting investments to just common stocks can cut into rewards.
Lesson #4: Once you’ve divvied up your investment pie, be sure to rebalance it several times a yearbringing your exposure in red-hot sectors down and back in line will keep you from getting sucked up into any bubbles.
Four simple tips, but lessons that have helped the nation’s top college endowment managers make the grade, even in a year when many of their hedge fund colleagues have flunked out.
Terry Keenan is the anchor of “Cashin’ In” and is a FOX News Channel business correspondent. Tune in Saturdays at 11:30 am ET, and find out what you need to know to make your money grow and keep what you already have !