This is not a post to argue you shouldn't be 100% in stocks if that's what you believe.
But if you're not in that camp and you're wondering about how to rationally allocate money to stocks and bonds, you might want to look at using Nobel Laureate Robert Merton's "Merton share" formula. (This is the basic subject of that popular book from last year, the Missing Billionaires.)
The formula, as I've mentioned before here, calculates the optimal allocation to equities like this:
(expected equity return - riskless return)/(standard deviation on equities^2*relative risk aversion "factor")
If you set the relative risk aversion factor to 1, which means you are very
not risk averse, the simplified formula might look like this given current environment:
(6% expected return on equities - 5% expected return on Treasuries)/(.16^2)... which equals roughly 40%
And then what's maybe my main point here is, after a bit of experimenting, I think you can probably get something like ChatGPT 4o to do the math for you.
What you do is point to the expected returns source you want to use and then ask ChatGPT to make the calculations. Here's an example prompt using Vanguard's most recent market outlook:
Please calculate merton share assuming returns shown in this webpage https://advisors.vanguard.com/insights/article/series/market-perspectives#projected-returns with 60% in us stocks and 40% in international stocks. Please use the intermediate treasuries return as the riskless rate. Assume risk aversion coefficient equal to 1.
