Mad Money Machine

Proof You Gotta Own Some Stock

You gotta own some stocks, but how much? I took the Paul Boyer Permanent Portfolio and varied the percentage of stock ownership from 0% to 100% in 5% increments while keeping gold, long term bonds, and cash divided equally among the remaining amount. Then I plotted each portfolios return vs. risk for 1975 through 2009. Take a look at the resulting graph. It turns out that portfolios with less than about 25% stocks were generally the same level of risk or even (surprise) a higher level of risk than holding 25% stock. Each of the numbered portfolios P0 through P100 split their stock ownership between Small Cap Value (VISVX) and Emerging Market (VEIEX). I also plotted the pure Harry Browne Permanent Portfolio and a simulated PRPFX.

It looks like Harry Browne was really onto something with his recommendation of owning 25% in stocks.