Just thought I would do a quick look at the optimal allocation of a persons savings when choosing between investing in Cash, Bonds, Canadian Equity, US Equity, or Global Equity. I found the following allocation had the optimum sharpe ratio:
|Cash||Bonds||TSX||US Equity||EAFE||Global Equity||Std Dev||Expected Return||Sharpe|
|0.45||0.394||-8.198E-18||0.156||2.479E-16 ||3.995E-18|| 0.003||0.0005||0.172|
A visual of the point in the portfolio distribution with the best risk/return is below:
This was created using a script from here. What I get out of that, is the equity markets are risky, which is illustrated by the line in the graph having a very low slope. The above was calculated with the maximum allocation in one entity allowed at 45%. If I change that to 100%, then, the best sharpe ratio occurs with 100% cash. This is extremely boring, I wish it were not true.