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
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