A balanced portfolio with strong US equity focus and low-cost diversified global bonds

Report created on Jan 11, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

The portfolio is primarily composed of equities and bonds, with a significant 60% allocation to the Vanguard S&P 500 ETF. This is complemented by 20% in the Vanguard Total World Bond ETF and 20% in the Vanguard FTSE All-World ex-US Index Fund ETF. This structure reflects a balanced approach, aligning with common benchmark compositions for moderate-risk investors. Such a composition aims to capture growth from equities while maintaining stability through bonds. However, the heavy reliance on US equities suggests a potential need to explore further diversification opportunities across other asset classes or regions to enhance risk-adjusted returns.

Growth Info

Historically, the portfolio has delivered a commendable Compound Annual Growth Rate (CAGR) of 10.48%, indicating robust past performance. This figure suggests that the portfolio has effectively capitalized on market growth, particularly from its significant US equity exposure. However, it's important to note that past performance doesn't guarantee future results. Comparing this to benchmarks, the portfolio's max drawdown of -27.84% highlights its vulnerability during market downturns. Investors should consider this potential volatility when assessing their risk tolerance and investment horizon.

Projection Info

The Monte Carlo simulation, which uses historical data to predict future outcomes, suggests a median growth of 136.65% over the investment horizon. This method provides a range of potential outcomes, indicating that while there's a high probability of positive returns (935 out of 1,000 simulations), the portfolio could still face downturns, as shown by the 5th percentile projection of -7.6%. Investors should interpret these projections as a guide rather than certainty, considering the inherent limitations of relying on historical data to forecast future performance.

Asset classes Info

  • Stocks
    80%
  • Bonds
    20%
  • Cash
    1%

The portfolio's asset allocation shows a heavy skew towards stocks, making up nearly 80% of the total. This allocation is typical for balanced portfolios, aiming to achieve growth through equities while bonds provide a buffer against volatility. Compared to benchmark norms, this mix is slightly more equity-heavy, which could enhance growth potential but also increase risk. Investors might consider adjusting the stock-to-bond ratio to better match their personal risk tolerance and investment goals, potentially incorporating other asset classes like real estate or commodities for further diversification.

Sectors Info

  • Technology
    22%
  • Financials
    12%
  • Health Care
    9%
  • Consumer Discretionary
    8%
  • Industrials
    7%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

Sector allocation reveals a strong emphasis on technology, comprising over 22% of the portfolio. While this aligns with current market trends and growth potential, it also exposes the portfolio to sector-specific risks, such as regulatory changes or market shifts. Other sectors like financial services and healthcare provide additional diversification, but their smaller allocations may not fully mitigate sector concentration risk. Investors should regularly review sector weights to ensure alignment with broader market conditions and personal risk preferences, potentially rebalancing to maintain a diversified sector exposure.

Regions Info

  • North America
    61%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly focused on North America, with 61.075% exposure. This reflects a common bias towards US equities, which can limit the benefits of international diversification. While developed regions like Europe and Japan are represented, emerging markets have minimal exposure, potentially missing out on growth opportunities. To enhance geographic diversification, investors might consider increasing allocations to underrepresented regions, balancing the portfolio's risk and return potential across global markets, and reducing reliance on any single region's economic 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.

Click on the colored dots to explore allocations.

The portfolio's risk-return profile can be optimized using the Efficient Frontier concept, which identifies the best possible risk-return ratio based on current assets. This doesn't necessarily mean adding new assets but rather adjusting the existing allocation to achieve greater efficiency. By rebalancing the proportions of equities and bonds, investors can potentially enhance returns for the same level of risk or reduce risk for the same level of return. Regular reviews and adjustments can ensure the portfolio remains aligned with the investor's evolving goals and risk tolerance.

Dividends Info

  • Vanguard Total World Bond ETF 2.50%
  • Vanguard FTSE All-World ex-US Index Fund ETF Shares 1.60%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 1.60%

The portfolio's dividend yield stands at 1.6%, with contributions from all three ETFs. While not the primary focus for growth-oriented investors, dividends can provide a steady income stream and contribute to total returns. For those seeking income, focusing on higher-yielding assets may be beneficial. However, it's important to balance yield with growth potential and risk. Investors should evaluate whether the current dividend yield aligns with their financial goals, considering reinvestment opportunities to enhance long-term growth.

Ongoing product costs Info

  • Vanguard Total World Bond ETF 0.05%
  • Vanguard FTSE All-World ex-US Index Fund ETF Shares 0.07%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from impressively low costs, with a Total Expense Ratio (TER) of just 0.04%. This low-cost structure supports better long-term performance by minimizing the drag on returns. Vanguard's reputation for low fees is well-reflected here, ensuring that more of the investment's growth is retained by the investor. Maintaining this cost efficiency is crucial, as even small fee reductions can significantly impact long-term wealth accumulation. Investors should continue to monitor costs and consider lower-cost alternatives if available.

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