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Warren Buffett’s Advice … Good for Nonprofit Endowments?

Crystal Evans, Gregory Evans and Maria A Quijada
The Journal of Wealth Management Spring 2023, jwm.2023.1.193; DOI: https://doi.org/10.3905/jwm.2023.1.193
Crystal Evans
is on the faculty at Regis University in Denver, CO
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Gregory Evans
is on the faculty at Columbia Southern University in Orange Beach, AL
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Maria A Quijada
is an associate professor at Metropolitan State University of Denver in Denver, CO
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Abstract

Owing to their personal success, affluent individuals are often asked to serve as nonprofit board members to help guide endowment investment policies. The coming wealth transfer, combined with a low-yield financial environment, adds importance to endowment financial management. Standard financial management favors a 60/40 allocation between equities and bonds. Warren Buffett, however, rejected this standard financial advice and directed the trustees of his estate to invest in a 90/10 allocation; 90% invested in the S&P 500 Index and 10% in short-term bonds. This article tests this strategy against various allocation methods for nonprofit endowments using a 5% payout. The heavier stock-weighted portfolios provide a higher likelihood an endowment balance will stay above the nominal initial balance and the inflation-adjusted balance, leading to a more certainty the endowment can be relied on for operational expenses. The tipping point appears to be the 80/20 allocation. Allocations with more than 20% bonds perform noticeably worse and allocations with less than 20% bonds perform marginally better.

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The Journal of Wealth Management: 25 (4)
The Journal of Wealth Management
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Warren Buffett’s Advice … Good for Nonprofit Endowments?
Crystal Evans, Gregory Evans, Maria A Quijada
The Journal of Wealth Management Jan 2023, jwm.2023.1.193; DOI: 10.3905/jwm.2023.1.193

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Warren Buffett’s Advice … Good for Nonprofit Endowments?
Crystal Evans, Gregory Evans, Maria A Quijada
The Journal of Wealth Management Jan 2023, jwm.2023.1.193; DOI: 10.3905/jwm.2023.1.193
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