"Basic financial principles require that long-term investment portfolios exhibit diversification and equity orientation." So writes David Swensen in his book, Unconventional Success: A Fundamental Approach to Personal Investment. Swensen references a six asset class portfolio that includes: domestic equities, foreign developed equities, emerging market equities, real estate, U.S. Treasury bonds, and U.S. TIPS.

These six asset classes, and the percentage allocated to each, are built around several logical points. 1) No asset class holds less than 5% and none are exposed to more than 30% of the portfolio. Swensen considers 5% a minimum one should hold in an asset class if that holding is to have a significant impact on portfolio performance. The maximum of 30% limits the exposure to potential risk in a single asset class. 2) The equity orientation to the portfolio is 70% providing a high-expected-return from these asset classes. The remaining 30% is allocated to high quality U.S. backed securities. 3) With 20% allocated to REITs and 15% to TIPS, the portfolio provides significant protection against inflation.

Swensen's well-diversified, equity-oriented portfolio includes the following asset classes. The percentages are the recommended policy targets:

1. Domestic Equities (30%)
2. Foreign developed equities (15%)
3. Emerging market equities (5%)
4. Real estate (20%)
5. U.S. Treasury bonds (15%)
6. U.S. Treasury Inflation-Protected Securities (15%)

The index equities used to populate the six asset classes, though not specified by Swensen, are the following:

• Domestic Equities: Vanguard's Total Stock Market Index ETF (VTI)
• Foreign developed equities: Vanguard Total Int'l Mkt (VEU)
• Emerging markets: Vanguard Emerging Mkts (VWO)
• REITs: Vanguard REIT Index ETF (VNQ)
• U.S. bonds: iShares Barclays 20+ Year Treasury Bond (TLT)
• TIPS: iShares Barclays TIPS Bond (TIP)