From what I recall playing around with simba's spreadhseet, there is likely no more efficient portfolio. Just keep in mind the more cash that is added, the more the Sharpe ratio goes up.Desert wrote: So far, the highest Sharpe ratio I've come up with is 0.83, with the following allocation:
10% Small Cap Value
10% Emerging Markets
70% 5-Year T-bills
10% Gold
I'm sure there is a mix out there that produces a higher Sharpe -- I'm curious to see what others can come up with.
But this is why mean variance optimization is useless in the real world. It will always favor those assets with past superior outperformance, in this case small cap value and past emerging countries (which would now be frontier). A better way to do mean variance optimization is to use forward-looking volatility so you avoid can buying "overvalued" assets above the mean. But, that still relies on using volatility for a risk proxy, which I think is B.S..