Tuesday, July 19, 2011

I am new to investing and m investing in equities for over a year.plz advice me on my portfolio.?

And where's your liquidity? Where have you got the portion that is kept risk free? It's usually bonds and cash equivalents. Ben Graham (Warren Buffet's mentor) says to keep 55% in bonds and to go no less than 20% in bonds. The Markowitz efficient frontier says that a 25% stocks, 75% bonds portfolio has the least amount of risk, less than even a 100% bond portfolio and that a 50/50 portfolio has the same risk as a 100% bond portfolio but much more return. Claude Shannon once did a proof that a 50/50 rebalancing portfolio had the optimal growth. Bernoulli's and Latane's use of the logarithmic utility of wealth also favors a 50/50 risk to no risk division but more importantly demonstrates that a 100% risk position guarantees eventual total loss. The risk free portion is what allows your portfolio to take advantage of a market downturn simply by rebalancing. Without a risk free portion, you are subject to correlated risks which is always higher than expected particularly in difficult economic times.

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