RT Journal Article
SR Electronic
T1 Warren Buffett’s Advice … Good for Nonprofit Endowments?
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP jwm.2023.1.193
DO 10.3905/jwm.2023.1.193
A1 Crystal Evans
A1 Gregory Evans
A1 Maria A Quijada
YR 2023
UL https://pm-research.com/content/early/2023/01/05/jwm.2023.1.193.abstract
AB 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.