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Motley Fool Foolish Four Portfolio.

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Motley Fool
Foolish Four Portfolio.


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This article was posted on June 1, 1999.

Effective Diversification Calculation
Motley Fool Foolish Four
No. Security Current
Value
(V)
Relative
Value
(R)
Beta
(V x R)^2 Comments
1 VMMXX $23,000 0.2300 0.05 0.00013 Vanguard Money Market Fund
2 CHV $19,250 0.1925 0.67 0.01664 Chevron
3 XON $19,250 0.1925 0.75 0.02084 Exxon
4 EK $19,250 0.1925 0.50 0.00926 Eastman Kodak
5 GM $19,250 0.1925 0.88 0.02870 General Motors
- Total $100,000 1.0000 - 0.07557 = Sum(V x R)^2

Effective Diversification, D = 1/(SUM (V x R)^2) = 1/(0.07557) = 13.2

Non-market Risk = 1/(SQRT (D)) = 1/(SQRT 13.2) = 27%

100% Safe Withdrawal Rate = 2.99%

95% Safe Withdrawal Rate = 3.75%

90% Safe Withdrawal Rate = 4.07%

Note: safe withdrawal rates based on 40 year pay out period.


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Copyright 1999 John P. Greaney, All rights reserved.

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