Most readers of Investors Chronicle, I suspect, have more than half of their financial wealth in shares or equity funds.
For years, this was reasonable. Some research back in 1969 by Robert Merton, a Nobel Prize-winning economist at MIT, showed why. He proposed a simple rule for asset allocation. The proportion of your wealth you invest in equities, he said, should be equal to the expected equity premium (the amount by which shares are expected to outperform safe assets) divided by the product of the variance of equity returns and a measure of your risk aversion.