Motley Fool Foolish Four Portfolio.

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.