Balanced Portfolio with Strong Diversification and Efficient Frontier Alignment for Moderate Risk Tolerance

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

This portfolio suits a moderately risk-tolerant investor seeking balanced growth and diversification. Ideal for individuals with a longer investment horizon, it offers exposure to global equity markets while managing risk through diversification. Such investors are typically comfortable with market volatility and understand the potential for both significant returns and drawdowns. Their goals likely include wealth accumulation over time, with a focus on maintaining a diversified and cost-effective investment strategy.

Positions

  • Vanguard Total Stock Market Index Fund ETF Shares
    VTI - US9229087690
    80.36%
  • Vanguard Total International Stock Index Fund ETF Shares
    VXUS - US9219097683
    19.64%

The portfolio is primarily composed of two Vanguard ETFs, with the Total Stock Market ETF making up about 80% and the Total International Stock ETF comprising the remaining 20%. This composition indicates a significant focus on equities, providing broad exposure to both domestic and international markets. The allocation reflects a balanced approach, aiming to capture the growth potential of stocks while maintaining diversification across geographies. Such a setup is well-suited for an investor seeking growth through equities while managing risk through diversification.

Growth Info

Historically, this portfolio has performed well, with a compound annual growth rate (CAGR) of 12.13%. This impressive performance suggests that the portfolio has effectively capitalized on market upswings, although it did experience a considerable maximum drawdown of -34.74%. This volatility is typical for equity-heavy portfolios, emphasizing the importance of understanding and being comfortable with potential fluctuations. Overall, the historical performance indicates strong returns, but it's crucial for investors to be prepared for periods of market downturns.

Projection Info

Using a Monte Carlo simulation, which involves running thousands of scenarios to predict future outcomes, the portfolio shows promising forward projections. With a hypothetical initial investment, the median expected return is 240.53%, with a 67th percentile return of 367.63%. These results suggest a high likelihood of positive returns, although variability exists. The simulation provides a range of outcomes, helping investors understand potential future performance and the associated risks, thus allowing for more informed decision-making.

Asset classes

  • Stocks
    100%
  • Cash
    0%
  • Other
    0%
  • No data
    0%

The portfolio is heavily weighted towards stocks, with over 99% allocated to equities, and a minimal allocation to cash and other assets. This indicates a strong growth orientation, as equities tend to offer higher returns over the long term compared to other asset classes. However, this also implies higher volatility and risk, as stocks can fluctuate significantly. For investors seeking to reduce risk, incorporating more fixed-income securities or diversifying into other asset classes could be beneficial.

Sectors

  • Technology
    27%
  • Financials
    15%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Real Estate
    3%
  • Utilities
    3%

Sector allocation within the portfolio is diverse, with significant exposure to technology, financial services, and healthcare. These sectors are known for their growth potential and have been key drivers of market performance in recent years. However, the concentration in these areas also means the portfolio is somewhat exposed to sector-specific risks. To mitigate this, ensuring a balanced sector allocation can help reduce the impact of downturns in any single industry, enhancing overall portfolio stability.

Regions

  • North America
    82%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    0%
  • Europe Emerging
    0%

The geographic composition is predominantly North American-focused, with over 81% of assets allocated to this region. While this provides exposure to a stable and mature market, it also limits diversification benefits from other regions. Including more assets from emerging markets or other developed regions could enhance diversification and potentially improve returns. A well-distributed geographic allocation can help mitigate risks associated with economic or political events in a single region.

Dividends

  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.63%

The portfolio has a moderate dividend yield of 1.63%, with the international ETF contributing a higher yield of 3.0% compared to the domestic ETF's 1.3%. While dividends provide a steady income stream, the focus on growth stocks means the yield is not the primary driver of returns. Investors seeking higher income may consider increasing allocations to dividend-focused funds or stocks, but this could impact the growth potential of the portfolio.

Ongoing product costs

  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from low costs, with a total expense ratio (TER) of just 0.04%. This is a significant advantage, as lower costs mean more of the investment returns are retained by the investor. Keeping expenses low is a key principle in investing, as high fees can erode returns over time. Maintaining this cost-efficiency while exploring opportunities to further optimize expenses can enhance the portfolio's 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 is well-positioned along the efficient frontier, indicating that it is already optimized for its current risk level. However, there is room for further optimization, as the optimal portfolio suggests a higher expected return with increased risk. Investors can adjust their risk tolerance to move along the efficient frontier, potentially enhancing returns by accepting more risk or reducing risk for more conservative growth. Understanding personal risk preferences is essential for making these adjustments effectively.

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