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#1
31st July 2007, 04:30 AM
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Allocations: stocks and risk-free
Has anybuddy seen a magic formula that suggests how much to invest in a basket of stocks and how much in some risk-free asset?
I have this one: (1+r)(M - r) / [ (S^2 + (M - r)^2 ] where M = Expected Mean of annual stock returns S = Standard Deviation of annual stock returns. r = risk-free investment For example: M = 9%, S = 25%, r = 4%, then the above suggests 80% in the stocks. I'm not looking for advice (I never use this stuff meself), but am interested in "other" such magic formulas. The above magic formula can be found here: http://www.gummy-stuff.org/pillow.htm 
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