A balanced portfolio heavily weighted in US equities with low costs
Report created on Feb 19, 2025Risk profile
4/7
Diversification profile
4/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 70.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 15.00% -
VY Vanguard High Dividend Yield Index Fund ETF Shares
VYM - US9219464065 15.00%
The portfolio is composed primarily of three Vanguard ETFs, with a significant 70% allocation to the Vanguard S&P 500 ETF. The remaining 30% is split equally between the Vanguard Total International Stock Index Fund ETF Shares and the Vanguard High Dividend Yield Index Fund ETF Shares. This composition leans heavily towards US equities, which can be beneficial for capturing growth in the US market. However, it might limit exposure to potential growth opportunities in other regions. Consider reviewing the allocation to ensure it aligns with your long-term objectives, especially if you desire broader international diversification.
Growth
Historically, the portfolio has performed well with a Compound Annual Growth Rate (CAGR) of 12.50%. This suggests strong past performance, especially when compared to the average market returns. However, it's important to remember that past performance does not guarantee future results. The maximum drawdown of -34.03% indicates potential volatility during market downturns. To mitigate this, consider stress-testing the portfolio against various market scenarios to understand potential risks better and make informed decisions.
Projection
Using Monte Carlo simulations, which predict potential future outcomes based on historical data, the portfolio shows a median projected return of 277.8%. With 986 out of 1,000 simulations yielding positive returns, this suggests a favorable risk-return profile. However, remember that these simulations rely on historical data and assumptions, which may not hold in the future. Regularly review projections and adjust the portfolio as needed to stay aligned with changing market conditions and personal investment goals.
Asset classes
- Stocks 99%
The portfolio is almost entirely invested in stocks, with 99% of assets in equities. While this can drive growth, it also increases exposure to market volatility. Having a single asset class limits the benefits of diversification, which can help manage risk. Consider introducing other asset classes, such as bonds or real estate, to enhance diversification and potentially reduce risk. This could provide a more balanced risk-return profile, especially during periods of market turbulence.
Sectors
- Technology 28%
- Financials 16%
- Consumer Discretionary 11%
- Health Care 10%
- Industrials 9%
- Telecommunications 8%
- Consumer Staples 7%
- Energy 4%
- Utilities 3%
- Basic Materials 3%
- Real Estate 2%
The sector allocation is heavily weighted towards technology (28%) and financial services (16%), which aligns with common benchmarks. This concentration may lead to higher volatility, especially during sector-specific downturns. While the technology sector has driven significant growth recently, it's important to consider whether this concentration matches your risk tolerance. Diversifying into underrepresented sectors, like utilities or basic materials, could provide stability and reduce sector-specific risks.
Regions
- North America 86%
- Europe Developed 6%
- Asia Emerging 2%
- Japan 2%
- Asia Developed 2%
- Australasia 1%
- Africa/Middle East 1%
With 86% of the portfolio allocated to North America, there's a significant home-country bias. This concentration offers familiarity and potential growth from the US market but limits exposure to international markets. Diversifying geographically can reduce risk and capture growth in emerging markets. Consider increasing allocations to regions like Europe or Asia to enhance diversification and mitigate potential risks associated with a single geographic focus.
Market capitalization
- Mega-cap 42%
- Large-cap 37%
- Mid-cap 19%
- Small-cap 2%
The portfolio predominantly consists of large-cap stocks, with 42% in mega caps and 37% in big caps. This focus on larger companies can provide stability and lower volatility, as these firms are typically more established. However, it might limit exposure to the growth potential of smaller companies. To capture broader market opportunities, consider adjusting the allocation to include more small or mid-cap stocks, which can offer higher growth prospects despite their higher risk.
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.
Click on the colored dots to explore allocations.
The portfolio can be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio for a given set of assets. This involves adjusting the allocation among existing holdings to maximize returns for a given level of risk. While the current composition is well-balanced, exploring minor adjustments could further enhance efficiency. Keep in mind that optimization focuses on the current assets and doesn't necessarily imply adding new ones.
Dividends
- Vanguard S&P 500 ETF 1.20%
- Vanguard Total International Stock Index Fund ETF Shares 3.10%
- Vanguard High Dividend Yield Index Fund ETF Shares 2.60%
- Weighted yield (per year) 1.70%
The portfolio's overall dividend yield is 1.70%, with the Vanguard High Dividend Yield Index Fund ETF Shares contributing significantly. Dividends can provide a steady income stream and enhance total returns, especially during periods of low capital appreciation. If income generation is a priority, consider increasing exposure to high-dividend-paying assets. However, balance this with the need for growth to ensure the portfolio remains aligned with long-term objectives.
Ongoing product costs
- Vanguard S&P 500 ETF 0.03%
- Vanguard Total International Stock Index Fund ETF Shares 0.08%
- Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
- Weighted costs total (per year) 0.04%
The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.04%. This low-cost structure supports better long-term performance, as fees can significantly erode returns over time. Vanguard's ETFs are known for their cost-effectiveness, contributing to the portfolio's efficiency. To maintain this advantage, continue monitoring fees and consider low-cost alternatives if reallocating or adding new investments to the portfolio.
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