Analysis Of The Sustainability Of Endowment Fund Spending Rates From Domestic And Internationally Diversified Portfolios

Abstract

Portfolio success rates do not diminish greatly when spending is increased from 5% to 7% in equity-heavy portfolios. Foreign equities increase the sustainability of spending rates in shorter planning periods. Portfolio success rate analyses were completed for hypothetical endowment portfolios of S&P 500 stocks, MSCIs Developed World x USA Index, and high-grade corporate bonds for planning periods of 1, 5, 10, and 15 years using overlapping samples of quarterly returns from the first quarter of 1970 through the fourth quarter of 2003. A portfolio is considered a success if at the end of the planning period the portfolios nominal value in Table 1 or deflated value in Table 2 net of spending is equal to or greater than its value at the beginning of the planning period. Higher portfolio success rates suggest greater sustainability of spending rates.