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Retire Early S&P500 Portfolio.

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Retire Early S&P500
Portfolio.


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This article was posted on June 1, 1999.

Effective Diversification Calculation
Retire Early S&P 500 Portfolio
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 VFINX $77,000 0.7700 1.00 0.011858 Vanguard S&P500
Index Fund
- Total $100,000 1.0000 - 0.01199 = Sum(V x R)^2

Effective Diversification, D = 1/(SUM (V x R)^2) = 1/(0.01199) = 83.4

Non-market Risk = 1/(SQRT (D)) = 1/(SQRT 83.4) = 10.95%

100% Safe Withdrawal Rate = 3.54%

95% Safe Withdrawal Rate = 4.44%

90% Safe Withdrawal Rate = 4.82%

Note (1): Safe withdrawal rates based on 40 year pay out period.

Note (2): Formula for (V x R)^2 was modifed to reflect 50 stocks in the S&P 500 index fund. New formula is D = 50*(1/(((V/50))*R))^2


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Copyright 1999 John P. Greaney, All rights reserved.

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