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Live In Studio: The Retirement Architect, The Yale Endowment Model

April 21, 2019

Check out this video to learn more about the highly successful model David has infused into his planning process

What if you could invest your money like a $30 billion institution, like an endowment?
This is David Reyes, your Retirement Architect. If you want to reach out to me, it’s 1-800-611-1967.

So, we’ve built our firm around what’s called an Endowment Model. And what does that mean in English, Dave? What is an endowment? What do I care? Well, what David Swensen, who runs the Yale Endowment, a $35 billion endowment. It’s one of the tops. I think Yale is $50 billion.

Endowments are very much like a retirement plan. So, what happens is people give money to the university, let’s say Yale, and over the years it’s $30 billion, a big number. And what happens is, that endowment funds a lot of expenses for the university, like, tens of millions of dollars. And, typically, you’re looking at about a 5% distribution of those assets. Think about that, 5%.

So, retirement is no different. We have our bucket of money here, right, that we saved our whole lives for. And we have to fund expenses. What’s it cost to eat? To have our cars? To have our house? To go on vacation? Well, if you’ve done good planning, your vacation would be your biggest expense, hopefully.

And, so, an endowment is similar to a retirement plan. It’s treated the same way, save money, take distributions. The funny part is the distribution of the typical endowment fund to pay for university expenses – they’re allocated for that – is about 5%. That’s the goal, we want to be able to pay 5% out of this endowment. And that is the number, coincidentally, that we want our clients to have for distribution, about 5%. So, on a million dollars, I can tell you from experience, we need to take out about $50,000 a year.

Now, according to Morning Star, according to other people a lot smarter than I am, you can only take out about 2.8% of your portfolio value without running out of money. That’s like $28,000 a year, as opposed to $50,000, which is what we gear our clients for. Because I know that’s what you need to have a good retirement.

So, the reason I’m explaining this to you, and using the Endowment Model as the example, is if you looked at Yale – it’s online, you can see it, and I look at their reports every year. And David Swensen, who is kind of the Godfather of the Endowment Model, which that means is; how do we invest money beyond stocks and bonds? Because most of you only have a stock and bond portfolio, right? And you have 50% stock, 50% bond, and I can tell you it’s too much risk. The average one of you listening to me right now would have about a 30% loss in another recession, okay? And that is just not acceptable. I mean if you have a million dollars, can you afford to lose $300,000?

That’s why retirement, it’s not about making a bunch of money, it’s about maximizing cash flow. Period. End of story. What’s the most money safely we can take out of our portfolio without running out of money?

So, how do we create a more bulletproof portfolio? Because stocks and bonds are just not enough. Does it mean they are not part of the portfolio? No. But there are other things. So, I will tell you I’m looking at, this is fiscal year 2001 for Yale’s Endowment. And equities, domestic equities 15%, foreign equities 10%. So, in 2001, the Yale Endowment only owned 25% stock. 25% stock, that’s it. And their return that year was 9.2%. It doesn’t sound like outrageous but in 2001 the stock market was down 13%. So, Yale was up 9.2 and the stock market was down 13, okay?

How did they do that? Well, they had some fixed income. They also have what’s called private equity. They had hard assets, which we use real estate. So, he had 16.8% hard assets, which most of that was real estate. Out of the portfolio was only about 25% stocks, the rest hard assets, other alternative investments. He outperformed the S&P by what? 22%. Minus 13% for the S&P and he was up 9%, that’s a 22% differential.

In 2000, the market was down 10%. Yale Endowment was up 41%, that’s a 50% differential. That same year, there was about 14% domestic equity, 9% foreign equity, 23%. And he earned 41% return. I’m not saying I can do the same thing. What I’m telling you though is what’s important to know – not just the return, because Swensen and Yale Endowments outperformed the S&P significantly since 1985 when he took over the fund.

The reason I’m sharing this with you is because there are other assets besides stocks and bonds we can invest in that not only can give us more returns over time, but smooth out the returns.

So, we use other asset classes like real estate, like annuities. We are going to have one of the CEOs of one of the big real estate firms that we use in what’s called student housing, and we are going to have him on in a couple of weeks. His name is Bryan Nelson of NB Private Capital, worked with him for a long time. And we love student housing. It’s a great asset class. We have properties: USC, Notre Dame, Ole Miss, West Virginia, a new property at Kent State, Northwestern University, a new property in Austin.

So, these are great investments. They pay good yields, right now in the 6% range. They are also tax favorable. So, we can actually reduce taxes and have more income. Again, tax is a cost. So, things like real estate, even annuities. And annuities I consider as an alternative. It’s not a stock or a bond, right? It’s an annuity. So that’s another diversifier.

Say if I own stocks and bonds and I own part of my investments in real estate, I own an annuity. You start seeing what’s happening. Now, we have these tranches of assets. All of a sudden, I’m not relying on the returns of the stock and bond market, which I cannot control anyway, for my retirement. So that’s kind of crazy.

So, if you want to learn how to build a portfolio, how we build portfolios, how we are completely different – I always say, “If you want a second opinion from somebody that’s going to be antithesis of our industry, then at least sit down with me.” Because I promise you’re going to learn something that you didn’t know, for sure. Another idea. You may not like it, but that is just the way we run our firm, and at least you will get something totally different than what have today. And I can say that with about 99% certainty because most of you have the same type of portfolio, some iteration of stocks and bonds.

So, if you want to get a second opinion from me, talk about your portfolio, show you how we do things differently, look at the fees of your portfolio – which we typically will reduce in half – give me a call at 1-800-611-1967. Or go to

So, again, an endowment investing is really kind of code word for not using just stocks and bonds as investments. We are going to use other investments, like real estate, have a hard asset, right? What does the income stream from an apartment building next to a student housing next to USC have to do with the stock market going down 50%? Zero. That means that we’re now on investments that are not correlated to the stock market or bond market. That reduces risk of the stock and bond market. It also has its own returns. Its own growth rates.

So, you start layering on these other asset classes – and I will argue, and I have proof of this – is that you’re going to have a lower volatility in your portfolio, and you have the opportunity to outperform the market, over time. It’s kind of the Tortoise and The Hare. Are we going to earn 20, 30% a year? No. But if we can earn 5-7%, like hitting singles and doubles, over the years and not go through the 50% downturns, we are going to do really well. So, again, if you want to reach out to me for a complimentary second opinion, give me a call 1-800-611-1967. That’s 1-800-611-1967. Or go to

So, as I mentioned, we are going to start having workshops, that will be posted on our website, that we are going to do at our offices in La Jolla, just to do more intimate workshops. I do a lot of public workshops. We do workshops for corporations, for different businesses. So, we want to do something a little more intimate. No more than probably 10, 12 people and do these more frequently. So just go to our website and you can receive information on that. Or call our offices, again, 1-800-611-1967 and ask for Crystal. She will be able to help you with that. She is awesome and she is in charge of all these workshops. So, I’m just happy to announce that. I will be giving you more dates and times as I get these. But we will be advertising these times and dates regardless.

So, we talked about endowment investing and why we feel it’s superior. How do we create asset classes that are not correlated to stock and bond markets? I can tell you from experience, if you just own a portfolio of stocks and bonds during the next financial crisis that we are going to have – I mean it’s not if, it’s just when and how much – you are going to be kicking yourself.

So, get a second opinion, whether it is from me or somebody else. I always say get it from two people. Get one from me, get one from somebody else and whoever you like better, like what they do, then hire them. But at least look at what you own because I will tell you, you don’t know what you own. And right now, you’re in a great position because the market has recovered a lot of its losses from last year. But we are still nowhere. We’ve gone nowhere. The stock market is exactly where it was almost a year and half ago – about 15, 16 months ago.

So, you’ve gone through, basically, a heart attack of going up 10%, down 10%, up 10%, down 20%, up 20%. I’m getting tired saying that because that’s like the EKG, right? You’re having a heart attack. Investing money that way is just insanity. And here is the good part, you don’t need to do that. You will have more success by having more asset classes in your portfolio, beyond stocks and bonds, earning mid- to high-single digit returns more consistently, being more taxed advantaged, reducing fees. All of those things will contribute to a higher success.

So, again, if you want to reach out to me, please do for a complimentary, free second opinion. You know, I will evaluate your portfolio. I will look at the fees you’re paying. I will look at the risk that you have in the portfolio. I will also do a complimentary retirement income plan for you that I would love to do. So, again, if you want to meet with me, give me a call at 1-800-611-1967. Or, go to

That is all the time I have for today. I look forward to next week. God Bless. And I will see soon.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor.
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