Really Good Reasons Investors Should Invest Like Harvard

Since the 1980s, Harvard has adopted a strategy of diversifying investments beyond mainstream U.S. stocks and bonds. Using a strategy pioneered by David Swensen of Yale, the diversification includes investing in non-traditional asset classes like timber, real estate, private equity, shipping container investments and global stocks and bonds.

Harvard recently announced that its endowment rose 15.4 percent for the fiscal year ending on June 30th 2014, trailing well behind the S&P 500’s return of 24.6 percent over the same time frame. Harvard’s strategy had been performing well until 2008, when the value tumbled 27.3 percent. As a result, their 10-year track record is a less than impressive 8.9 percent, compared to the S&P 500’s 8.38 percent over the same time frame. With Harvard’s diversification, however, only 11 percent of its allocation is to U.S. equities. That allocation outperformed the S&P 500 by 1.1 percent in 2014 and speaks to the importance of investing in emerging markets and that Asian markets are a wise investment too.

It is over the long time horizon that Harvard’s diversification reveals its appeal. Over the last 40 years, Harvard’s 12.3 percent average annual returns beat the S&P 500’s 10.29 percent. For investors with patience and a long-term horizon, Harvard-like diversification can be achieved through exchange-traded funds (ETFs).

Investing in timber stocks through ETFs like iShares Global Timber and Forestry (WOOD), and publicly traded private equity firms through the PowerShares Global Listed Private Equity Portfolio (PSP) allow for Harvard-like diversification. Adding the Global X Guru Index ETF (GURU) and the AlphaClone Alternative Alpha ETF, allow for further diversification through investment in the stock holdings, favored by the largest hedge funds. That said, investors saving for retirement or have long-term goals, can use a number of the well-established nontraditional investments, to invest like Harvard does; and enjoy favorable returns and much-needed diversification.

How-To Reduce Risks When Investing in Alternative Investments

Every investor is looking for valuable insight on how to reduce and minimize risks, especially when considering investments that may not be so mainstream. Here are some investing tips to help you reduce risks when investing in alternative investments:

If The Investment is Out of Country, Find a Broker.
Emerging Markets are a great place to find alternative investments. Given that, each market has its own set of rules and guidelines to follow. I have found the best practice is to hire a broker who is located in the geographic area of interest, and who understands the marketplace well. This can greatly increase an investor's confidence.

Stay on Top Of Your Investments.
With regards to alternative investments, often times you are the one managing your own portfolio. If this is the case, it is critical that you conduct in-depth research to remain on top of every investment. This is made easier in some industries if you hire an asset manager or some sort of financial planner, but ultimately you must understand that the final decisions are yours. If you don't stay on top of these things, your investments might not turn out the way you had forecast.

Invest in Different Industries.
Do not just leave all of your investment money tied up in 1 or 2 industries. Think about nontraditional investments and create a strategy and portfolio that includes a mix of different industries (green technology for example), while keeping some steady and lower risk investments (like real estate or shipping containers).

Always Seek Out Advice And Testimonials.
One of the best things you can do for alternative investments is to research and ask questions. If you are considering an investment type that you are not familiar with, pick up the phone and call the broker. If they cannot provide you with testimonials from current investors, then use the internet and seek out answers for yourself.

Although you can count on these tips to help you reduce risks when investing in alternatives, it is important that you determine what your threshold for risk is, before beginning your investment search. Once you correctly identify for tolerance, you will know exactly what you are working to reduce.

Understanding Investments in a Portfolio is Vital to Success

It is important for investors to stay up to date with their investments and make updates to their portfolio as markets change and new information emerges.

Most investors have a clear, set strategy for investing when they first get started. The really good ones stay on top of it and update their investment path and portfolio as markets change and new technology/industries emerge. Being an investor requires constant attention to your marketplace, AND marketplaces that could affect your chosen industry or sector for investment.

Setting a clear and focused strategy is fairly easy to do with mutual funds, stocks and bonds etc., but when considering alternative investment options for your portfolio, it is important to try and create a strategy for investing that matches the type you have chosen. For example, if you have chosen to invest in a wine collection, it would be imperative that part of your strategy be to become knowledgeable and completely understand the wine industry in general. It would also be very wise to track conditions of grape growing and the overall marketplace for collectors. Also, subscribing to the right magazines and generally staying on top of the industry in general is recommended. In doing so, you will gain knowledge form all these sources that will help you set the record straight, when making important investment decisions.

Essentially, investing in nontraditional investments requires that you become an expert in the industry, or requires that you to hire a broker who can do that for you. In the shipping container leasing/renting industry you can hire a maritime asset management company who handle all of the fulfillment and management of your container. While in the real estate industry you can work with agents or chose to hire a property manager to handle all of the day-to-day items involved in owning property.

In general though, keeping a close eye on your entire chosen industry is critical and someone you can do from home. The truth be told, the Internet can provide more data than you are capable of digesting. It is therefore important to chose an sector or a type of investment that you 1) are comfortable with, 2) can stay on top the industry's changes, or 3) can pay someone to stay on top of it for you. Remember, all this must be accomplished without comprising your overall return. Is the hassle of dealing with tenants enough for the 5% property management fee? Is dealing with a broker for shipping container investments worth the hassle of trying to find people to lease them? In the vast majority of instances, the answer is yes.