The theme is whether y'all should invest inwards aureate every 2nd business office of your portfolio. After y'all read the column, y'all mightiness honour the next work of interest. It is based on some plausible assumptions.
Imagine that y'all commencement off amongst a portfolio of 60 per centum stocks in addition to xl per centum bonds. The returns on stocks, bonds, in addition to aureate are uncorrelated. Stocks earn a higher expected supply than bonds. Bonds in addition to aureate earn the same lower expected return, but gold returns are 3 times every 2nd volatile every 2nd bond returns, every 2nd measured yesteryear the touchstone deviation. You desire to minimize risk, measured yesteryear the variance of your portfolio return, without changing the expected supply on your portfolio. How much aureate should y'all buy?
I volition larn out this problem as an practise for the reader. But I believe y'all should live on able to come upwards with a precise numerical response without resorting to a computer.
Update: Albert Zevelev, a grad pupil at Penn, posts the right response here. Sumber https://gregmankiw.blogspot.com/
