Balanced Portfolio with Strong US Focus and High Equity Exposure Suited for Moderate Risk Tolerance

Report created on Dec 3, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is heavily weighted towards equities, with a significant 70% allocation in the Vanguard Total Stock Market Index Fund ETF. This suggests a strong focus on capturing the overall market's performance, particularly within the U.S. market. Additionally, there is a moderate allocation in bonds, which provides some level of stability. The inclusion of small cap and international funds adds a touch of diversification, but the overall composition leans towards a growth-oriented strategy. To enhance diversification, consider balancing equity and fixed income investments more evenly to mitigate risks.

Growth Info

Historically, the portfolio has shown impressive performance, with a compound annual growth rate (CAGR) of 14.07%. This indicates strong returns over time, though it's important to note the maximum drawdown of -24.45%, highlighting potential volatility. The days that make up 90% of returns are just 21, which shows that gains are concentrated in a few high-performing days. While past performance is not indicative of future results, maintaining a diversified approach can help manage risks and capture potential gains in various market conditions.

Projection Info

Using a Monte Carlo simulation, which models potential future returns based on historical data, the portfolio shows a wide range of outcomes. With 1,000 simulations, the annualized return is projected at 7.61%. There's a 5th percentile outcome of -35.83%, while the median is 118.34%, and the 67th percentile is 197.97%. This demonstrates the inherent uncertainty in investing and the importance of preparing for different scenarios. To improve potential outcomes, consider strategies to manage risk and enhance diversification.

Asset classes Info

  • Stocks
    90%
  • Bonds
    10%

The portfolio is predominantly invested in stocks, comprising nearly 90% of the total allocation. Bonds make up about 10%, providing some stability. This asset class distribution indicates a growth-focused strategy, which can lead to higher returns but also increased volatility. A more balanced allocation between stocks and bonds can help manage risk, especially during market downturns. Evaluating the appropriate mix of asset classes based on investment goals and risk tolerance is crucial for optimizing portfolio performance.

Sectors Info

  • Technology
    26%
  • Financials
    13%
  • Consumer Discretionary
    10%
  • Industrials
    9%
  • Health Care
    9%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    3%
  • Real Estate
    2%
  • Utilities
    2%

Sector allocation reveals a strong emphasis on technology, which accounts for over 25% of the portfolio. Other significant sectors include financial services, consumer cyclicals, and industrials. This concentration in certain sectors can lead to higher volatility, especially if those sectors face downturns. To mitigate sector-specific risks, consider diversifying across a broader range of sectors. This can help ensure that the portfolio is not overly reliant on the performance of a few sectors and can better withstand market fluctuations.

Regions Info

  • North America
    86%
  • Europe Developed
    2%
  • Japan
    1%

Geographically, the portfolio is heavily tilted towards North America, with over 85% of investments in this region. This concentration exposes the portfolio to regional risks and limits exposure to potential growth opportunities in other parts of the world. While the U.S. market has historically performed well, diversifying into international markets can provide a hedge against regional economic downturns. Expanding geographic exposure can also tap into emerging markets, which may offer higher growth potential.

Redundant positions Info

  • Vanguard Long-Term Treasury Index Fund ETF Shares
    Vanguard Extended Duration Treasury Index Fund ETF Shares
    High correlation

Within the portfolio, there are highly correlated assets, particularly among the treasury funds. These assets tend to move in the same direction, providing limited diversification benefits. This correlation can increase risk during market downturns, as similar assets may experience declines simultaneously. To enhance diversification, consider reducing the allocation of highly correlated assets and introducing investments that have lower correlations with existing holdings. This approach can help stabilize returns and reduce overall portfolio 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.

Before optimizing, focus on reducing overlapping assets that offer no diversification benefits. The efficient frontier can guide adjustments for riskier or more conservative portfolios. Moving along the frontier involves altering the stock-bond ratio to align with risk tolerance. A riskier portfolio may increase stock exposure, while a conservative one might boost bonds. Consider the impact of sector and geographic diversification when optimizing. Achieving an efficient portfolio requires balancing risk and return, ensuring alignment with financial goals.

Dividends Info

  • Avantis® International Small Cap Value ETF 3.10%
  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Vanguard Extended Duration Treasury Index Fund ETF Shares 4.10%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 3.00%
  • Vanguard Intermediate-Term Treasury Index Fund ETF Shares 3.60%
  • Vanguard Long-Term Treasury Index Fund ETF Shares 4.00%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 1.53%

The portfolio's dividend yield stands at 1.53%, reflecting a moderate income generation potential. Treasury index funds contribute significantly to this yield, with yields ranging from 3.6% to 4.1%. While dividends provide a steady income stream, the portfolio's primary focus is on growth, given the high equity allocation. Investors seeking higher income might consider increasing exposure to dividend-focused funds or stocks. Balancing growth and income objectives can help achieve a more comprehensive investment strategy.

Ongoing product costs Info

  • Avantis® International Small Cap Value ETF 0.36%
  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Vanguard Extended Duration Treasury Index Fund ETF Shares 0.06%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 0.05%
  • Vanguard Intermediate-Term Treasury Index Fund ETF Shares 0.04%
  • Vanguard Long-Term Treasury Index Fund ETF Shares 0.04%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.07%

The total expense ratio (TER) of the portfolio is 0.07%, which is relatively low and indicates cost-effective management. The majority of the funds have minimal expense ratios, with the highest being 0.36% for the Avantis International Small Cap Value ETF. Keeping investment costs low is crucial for maximizing returns over time. Regularly reviewing and managing expenses can ensure that costs do not erode investment gains. Consider evaluating other low-cost investment options to further optimize the portfolio's cost structure.

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