A typical Cheesecake Factory restaurant has over 250 meal options on their menu. Sitting there perusing the menu, you might think you have an incredible range of choice, until you realize that you are in a single Cheesecake Factory. All 250 dishes will be prepared by the same people, in the same kitchen, with the same ingredients. With the exception of the rare food poisoning tail event, when you walked into the restaurant you set a floor and a ceiling on your experience. If you want to eat something actually different, you need to go somewhere else.

For the last 40 years, researchers have been publishing studies that show the same is true in investing. Most investor results are over 90% determined by asset allocation - how much in US equities vs global equities vs bonds vs commodities and so on. Your specific choices about which manager or structure to use matters less than 10%. In other words, what matters is the restaurant, not what you order. Take US equities - you are investing in the success of US companies. You can use different stock pickers or hold an index ETF or wrap the companies in different liquidity terms or financial structures, but at the end of the day you have a Cheesecake Factory problem. All of those companies are cooked up by the same monetary policy, fiscal policy, tax code, labor conditions, growth and inflation, shared investors, etc. etc. Of course, it’s still better to pick the best things off the menu if you have the skill to do so, that’s just hard to do and not the important thing.

Let’s make this tangible. I’ll pick on CalPERS, though this analysis would hold at almost all institutions. The table below shows their annual performance vs a vanilla mix of 70% global equities, 30% US bonds. The two return streams are 96.4% correlated. That means they move the same way, except for the 1.8%/year underperformance of CalPERS.

My best guess from poking around is that CalPERS has an investment team of hundreds of people with an all-in cost of ~$240mm/year. And yet a few folks sitting around a table at Cheesecake Factory could come up with ~70/30 before the appetizers were even served and produced almost the same result.

What to take away from all this? Well, two things: 1) most investors spend most of their time on stuff that doesn’t matter much, so don’t do that and 2) doing better than a thoughtfully constructed asset allocation is difficult, and no amount of resources guarantees success. So have a bias to keep your portfolio simple, diversified, and low-cost, and you’ll do great.