Last year, an unusual story made the news: The University of Chicago was reportedly looking to sell an entity known as the Center for Research in Security Prices (CRSP). The story came and went quietly, but it’s worth pausing to understand it.

CRSP’s origins date back to the 1960s. Its initial goal was to build a database of historical stock prices. This is harder than it might seem. Before trading was computerized, stock prices were maintained on paper. And when stocks split or companies merged, that added to the complexity.

Despite this seemingly dull mandate, CRSP has played an important role in the development of modern finance over the years. Most notably, the efficient market hypothesis and the capital asset pricing model were both made possible by CRSP data. And today, many of the world’s largest index funds, including Vanguard’s Total Stock Market Fund, are built on CRSP indexes.

For these reasons, CRSP has long been one of the University of Chicago’s crown jewels. So it was a surprise when officials announced it would be putting it on the market—especially since the asking price, at about $400 million, was modest relative to the university’s $11 billion endowment. Why would Chicago feel compelled to sell?

According to an account in the Financial Times, UChicago’s finances have been in tough shape in recent years. Despite a strong market, its endowment has lagged while its indebtedness has climbed.

The story carries useful lessons for individual investors, so it’s worth studying where the university went off track.

Spending. The 1996 book The Millionaire Next Door examined the financial habits of millionaires. A key finding was that the path to millionaire status didn’t require a high-paying job. Regardless of income level, the key to financial success wasn’t complicated: Income simply needed to exceed expenses by a reasonable enough margin. It was almost that simple.

Ironically, the economics department at the University of Chicago is renowned. Milton Friedman, Eugene Fama and Richard Thaler are among its Nobel Prize recipients. Nonetheless, it fell prey to one of the most well known pitfalls in personal finance: overspending—and specifically, overspending in an effort to keep up with the Joneses.

What exactly happened? Several years ago, in an effort to compete with peers, Chicago began investing heavily in new academic programs and buildings. Chief financial officer Ivan Samstein explained that the goal was to “drive the university’s eminence.” But the spending wasn’t accompanied by increases in revenue. As a result, the annual operating deficit rose 10-fold between 2021 and 2024. Total outstanding debt now stands at more than $6 billion.

Clifford Ando, a professor at UChicago, noted that, “the borrowing generated buildings,” but that the university failed to think a step ahead. “With the buildings come operational expenses that the university has not figured out how to fund.”

The lesson for individual investors is almost self-evident: No matter what level of resources one might have in the bank, the importance of planning should never be ignored.

Saving. At least since Biblical times, it’s been understood that economies go through cycles. This is another way in which the Chicago story is instructive. Investment markets have been strong for most of the past 15 years. But instead of taking the opportunity to stockpile resources for the future, administrators decided to ramp up spending and add debt.

This seems like a mistake that should have been easy to avoid, but it’s also understandable. When markets are rising, we know the right thing to do is to bolster our savings. But that’s often easier said than done, because of what’s known as recency bias—the expectation that current trends will continue into the future.

Recency bias makes rebalancing, and risk-management in general, feel less necessary when the market seems like it’s only going up. But that’s when, in my view, we should be most diligent about managing risk. Thus, with the market near all-time highs, this is a good time to review your portfolio’s asset allocation.

Investing. A final reason for the university’s tight finances: Like many of its peers, UChicago invested across a mix of public and private funds. But that strategy ended up backfiring, in two ways.

First, performance has lagged. Over the 10-year period through the end of 2024, the university’s endowment gained 6.7% per year. In contrast, Vanguard’s Balanced Index Fund (ticker: VBIAX) returned 8.2% per year over the same period. As a result, all things being equal, the university’s endowment would be nearly 15% larger today if it had put all its money in this one simple index fund rather than in the complicated mix of funds it chose.

A further problem for Chicago’s endowment was the nature of its holdings. It had allocated more than 60% of its investments to private equity, real estate and other illiquid assets. That’s made it harder for the university to access funds to cover ongoing deficits. This is likely the primary reason it felt compelled to sell CRSP despite having $11 billion in the bank.

This carries another important lesson: Private equity is making a push to work its way into everyday investors’ 401(k)s, but it’s not just Chicago’s unfortunate experience that should give us pause. According to a recent write-up in The Wall Street Journal, even Ivy League schools, which had traditionally done well with private funds, “are having second thoughts.” If even these large institutions, with dedicated investment offices, are stepping back from private equity, the message for individual investors seems clear.

A postscript on this topic: Earlier this week, a private credit fund operated by a firm called Blue Owl Capital, announced that it would no longer be accepting redemption requests from investors. Instead, the fund will only return shareholders’ money at the firm’s discretion over time. This is a perfect case in point. Blue Owl is one of the firms that has been lobbying hard for access to consumers’ 401(k)s.

When it comes to evaluating investments, most discussion tends to focus on risk and return. But the Blue Owl case, which mirrors the University of Chicago’s experience, highlights something important: Risk and return will always be unknowns. But liquidity—that is, the ability for investors to freely withdraw their money—is one of the only variables that we have control over before making an investment.​