Plus, many investors can't stomach the losses of a 100% equities portfolio, let alone something levered up.
>How do we reconcile this? Intuitively, the function of your age needs to be included in this equation (I think somebody commented on this already).
Age is a proxy for funding amount. A lot of investment goals aren't just "maximize the amount of money I get". They often care about things like "I need to spend $X/yr in retirement". So your investment goal should also put some weight on how likely it is to sustain that, and a higher bond percentage at higher investment amounts will do that.
For a consumer, the rate of funding would be higher, however.
Alternatively, where can I get my 3%? No ICOs please ;-)
3% is more accurate for the cost of margin loans or the opportunity cost of pre-paying a mortgage.
no single security provides the risk-free rate but perhaps a (small) portfolio of securities could get you the risk-free return.
Putting 160% would mean using a leveraged S&P 500 ETF.
Plugging in an average stock market performance (over last 20 years):
Return: 8% Standard Deviation: 17.72% Risk free rate: 3% (guess)
This gives f = 1.59.
This means the optimal strategy is to be putting 159% of your money in an ETF index?
This strategy is in stark contrast with the typical 70%-30% allocation of investments. How do we reconcile this? Intuitively, the function of your age needs to be included in this equation (I think somebody commented on this already).