Investment strategy

International market is increasingly important to the world economy. The United States has seen its share of the global equity market decline from 68% in 1970 to 46% in 2004. Therefore, if you wanted to construct a total world stock market index portfolio today, you could devote 46% of your portfolio to the Vanguard Total Stock Market Index Fund and 54% to the Vanguard Total International Stock Index Fund. For more fine grained control, in lieu of the Total International Stock Index, you could split the international part of the portfolio between the Vanguard Developed Market Index Fund and Emerging Markets Index Fund; in his book “Global Bargain Hunting”, Burton Malkiel wrote, “Over an eleven year period ending in 1995, the mix that provided the highest return available with the least risk was 61% U.S stocks, 26% developed country stocks, and 13% emerging market stocks.”Swensen suggests the following reference portfolio for investors to consider (and to tweak to suit their individual circumstances): U.S. Stocks 30% International Developed Markets Stocks 15% International Emerging Markets Stocks 5% U.S. Government Bonds 15% Inflation-Indexed Bonds (TIPS) 15% Real Estate 20%. Overall, I thought Swensen’s book had many valuable insights for individual investors. An individual can mimic his reference portfolio on the cheap by buying Vanguard index funds for the six core asset categories: Total Stock Market Index Fund (5-Year return: -0.59%) Developed Market Index Fund (5-Year return: 2.92%) Emerging Markets Index Fun (5-Year return: 14.27%) Intermediate-Term Treasuries (5-Year return: 6.5%) Inflation-Protected Securities (5-Year return: 8.79%) REIT Index Fund (5-Year return: 14.09%)