Balanced Portfolio with Broad Diversification and High Correlation in US-Centric Holdings

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Balanced Investors

Suitable for a balanced investor seeking growth with moderate risk tolerance. This investor values diversification and aims for long-term capital appreciation. They are comfortable with market volatility and have a medium to long-term investment horizon. The focus is on achieving a blend of domestic and international exposure, with a slight tilt towards growth sectors. This investor prioritizes low costs and is open to exploring additional asset classes to enhance portfolio stability and income generation, aligning with a prudent and strategic investment approach.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    55.00%
  • Vanguard Total International Stock Index Fund ETF Shares
    VXUS - US9219097683
    33.00%
  • Vanguard Growth Index Fund ETF Shares
    VUG - US9229087369
    12.00%

The portfolio consists of three primary ETFs, with a significant portion allocated to the Vanguard S&P 500 ETF at 55%. This allocation reflects a strong focus on the US market. The Vanguard Total International Stock Index Fund ETF Shares at 33% provides international exposure, while the Vanguard Growth Index Fund ETF Shares at 12% targets growth stocks. The composition is broadly diversified across sectors, with a strong tilt towards technology. This allocation indicates a preference for growth and stability, balancing US and international equities to mitigate risk while seeking returns.

Growth Info

Historically, the portfolio has shown a commendable compound annual growth rate (CAGR) of 11.7%, suggesting robust performance over time. However, the maximum drawdown of -33.49% highlights the potential for significant losses during market downturns. The concentration of returns in just 28 days indicates volatility, with a few days driving most gains. This performance suggests a balanced risk-return profile, where the portfolio has benefitted from market upswings but is also susceptible to downturns. A long-term horizon could help smoothen out the volatility and achieve desired returns.

Projection Info

Using Monte Carlo simulations, which model potential future outcomes by accounting for risk and uncertainty, the portfolio shows promising prospects. With a hypothetical initial investment, the 5th percentile projects a 43.83% increase, while the median scenario anticipates a 364.18% growth. Notably, 983 out of 1,000 simulations yield positive returns, indicating a high likelihood of favorable outcomes. This suggests that the portfolio, while balanced, could benefit from a long-term investment strategy to harness potential growth while managing risk.

Asset classes

  • Stocks
    99%
  • Cash
    1%
  • Other
    0%
  • No data
    0%

The portfolio is heavily weighted in stocks, with 99.44% allocated to equities, reflecting a high-risk, high-reward strategy. The minimal allocation to cash and other assets suggests limited liquidity and diversification across asset classes. This equity-centric approach aligns with a growth-oriented investment strategy, seeking capital appreciation rather than income generation. To enhance risk management, consider diversifying into additional asset classes like bonds or real estate, which could provide stability and income, reducing overall portfolio volatility.

Sectors

  • Technology
    28%
  • Financials
    15%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Basic Materials
    4%
  • Energy
    4%
  • Utilities
    3%
  • Real Estate
    2%

Sector allocation is diverse, with a notable emphasis on technology at 28.42%, followed by financial services and consumer cyclicals. This allocation suggests a focus on sectors with growth potential and resilience. However, the concentration in technology could lead to sector-specific risks, particularly during market corrections. While the diversification across 11 sectors is commendable, maintaining a balanced exposure to defensive sectors like healthcare and consumer staples could help cushion the impact of economic downturns and provide more consistent returns.

Regions

  • North America
    69%
  • Europe Developed
    13%
  • Asia Emerging
    5%
  • Japan
    5%
  • Asia Developed
    3%
  • Australasia
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%
  • Europe Emerging
    0%

Geographically, the portfolio is predominantly North American, with 69.23% exposure, indicating a strong home bias. While this aligns with the investor's US domicile, it limits exposure to other potentially lucrative markets. The inclusion of Europe, Asia, and emerging markets provides some diversification but remains limited. To capitalize on global growth opportunities and reduce regional risk, consider increasing allocations to underrepresented regions. A more balanced geographic distribution could enhance returns and mitigate the impact of localized economic challenges.

Redundant positions

  • Vanguard Growth Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlation between the Vanguard Growth Index Fund ETF Shares and the Vanguard S&P 500 ETF, suggesting overlapping exposure to US growth stocks. This correlation can amplify portfolio volatility, as both assets are likely to react similarly to market movements. To mitigate this risk, consider diversifying into assets with lower correlation, which can provide more stable returns by offsetting losses in one area with gains in another. This approach can enhance the portfolio's resilience to market fluctuations.

Dividends

  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.71%

The portfolio's dividend yield stands at 1.71%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 3.0%. This yield offers a modest income stream, supplementing capital gains. While the focus is on growth, incorporating higher-yielding assets could enhance income generation, providing a buffer during market downturns. Balancing growth and income can create a more robust portfolio, catering to both capital appreciation and cash flow needs, particularly for investors seeking regular income.

Ongoing product costs

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.05%

The portfolio maintains a low total expense ratio (TER) of 0.05%, reflecting cost-efficient management. This low-cost structure is advantageous, as it minimizes fee-related drag on returns, allowing more capital to compound over time. Keeping costs low is crucial for maximizing net returns, particularly in long-term investment strategies. While the current cost structure is commendable, continually monitoring and comparing expense ratios across similar products can ensure ongoing cost efficiency, thereby enhancing overall portfolio performance.

Risk vs. return

This chart shows the Efficient Frontier, calculated using your current assets with different allocation combinations. It highlights the best balance between risk and return based on historical data. "Efficient" portfolios maximize returns for a given risk or minimize risk for a given return. Portfolios below the curve are less efficient. This is informational and not a recommendation to buy or sell any assets.

The portfolio's optimization potential is limited due to high correlations between assets, particularly in US equities. Instead of optimizing, focus on diversification to reduce risk exposure and enhance returns. Moving along the efficient frontier can help achieve a more conservative or riskier portfolio by adjusting the balance between growth and defensive assets. Consider incorporating more diverse asset classes and geographic regions to improve risk management. This approach can create a more resilient portfolio, capable of weathering market fluctuations and achieving desired investment outcomes.

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