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.
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.
Balanced Investors
This portfolio suits an investor seeking growth with a moderate risk tolerance and a long-term investment horizon. It prioritizes exposure to US equities while maintaining some international diversification, making it ideal for individuals looking to capitalize on the stability and potential growth of developed markets. The focus on equities suggests an inclination towards capital appreciation, but the investor should be comfortable with market volatility and willing to endure short-term fluctuations for potential long-term gains.
This portfolio is composed of two main ETFs: 75% in the Vanguard S&P 500 ETF and 25% in the Vanguard Total International Stock Index Fund ETF Shares. This structure predominantly focuses on US large-cap equities while offering some diversification through international stocks. Such a composition highlights a preference for stability and potential growth from established markets. A portfolio like this benefits from the historical resilience of US equities, but it may be limited in exposure to emerging markets or alternative asset classes. For broader diversification, consider adding other asset classes like bonds or real estate.
Historically, the portfolio has delivered a commendable CAGR of 12.53%, reflecting strong past performance. However, it experienced a significant maximum drawdown of -33.83%, indicating vulnerability during market downturns. It's important to understand that past performance doesn't guarantee future results, as market conditions can change. The portfolio's past success is largely attributed to the robust performance of US equities, particularly in technology and other growth sectors. To mitigate potential future risks, consider strategies to manage drawdowns, such as diversifying further or incorporating defensive assets.
The Monte Carlo simulation, using 1,000 iterations, projects a range of potential future outcomes based on historical data. The median scenario suggests a 285.94% increase, while the 5th percentile indicates a lower bound of 20.58%. While simulations provide a probabilistic view of potential outcomes, they rely on historical data, which may not account for unforeseen market shifts or black swan events. To enhance future projections, regularly review and adjust the portfolio in response to evolving market conditions and personal financial goals.
The portfolio is heavily weighted towards stocks, comprising 99.56% of the total allocation, with minimal exposure to cash and other asset classes. This concentration in equities suggests a higher risk-reward profile, suitable for investors with a moderate to high risk tolerance. While equities have historically provided strong returns, they also bring volatility. To enhance diversification and reduce risk, consider adding other asset classes such as bonds or commodities, which may offer stability and potential hedges against equity market downturns.
The portfolio's sector allocation is led by technology at 28%, followed by financial services and healthcare. This concentration in tech reflects confidence in growth sectors, but it also increases vulnerability to sector-specific risks. Diversification across sectors helps mitigate the impact of downturns in any single industry. Consider rebalancing to ensure a more even sector distribution, which can enhance stability and reduce the risk of overexposure to cyclical downturns in specific industries.
Geographically, the portfolio is predominantly focused on North America, with 76.5% exposure, followed by Europe and Asia. This geographic concentration provides stability from developed markets but limits exposure to potentially high-growth emerging markets. Geographic diversification can help spread risk and capture growth opportunities in different regions. Consider increasing exposure to emerging markets to tap into their growth potential while maintaining a balance that aligns with your risk tolerance and investment goals.
This portfolio offers a moderate dividend yield of 1.65%, with the international ETF contributing a higher yield of 3%. Dividends provide a steady income stream and can enhance total returns, especially in volatile markets. However, relying solely on dividends may not suffice for income needs. Consider integrating a mix of growth and income-focused investments to balance capital appreciation with income generation. Regularly reassess dividend yields and reinvest for compounding benefits.
With a total expense ratio of 0.04%, this portfolio is cost-efficient, minimizing the drag on returns. Low costs are crucial for maximizing long-term growth, as they compound over time. Vanguard's reputation for low-cost investing aligns well with this objective. While the current costs are competitive, it's always beneficial to periodically review fees and explore other cost-effective investment options that align with your financial goals. Keeping costs low without compromising on quality investments is key.
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 could potentially be optimized using the Efficient Frontier to achieve a better risk-return ratio. The Efficient Frontier identifies the optimal asset allocation that maximizes returns for a given level of risk. By adjusting the current asset weights, it may be possible to enhance the portfolio's efficiency. However, it's important to note that optimization is based on historical data and assumptions, which may not always predict future performance. Regular reviews and adjustments in response to changing market conditions are recommended.
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