A balanced portfolio with strong domestic focus and low-cost diversified ETFs
Report created on Jan 12, 2025Risk profile
4/7
Diversification profile
4/5
Positions
-
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 80.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 20.00%
The portfolio is composed of two ETFs: the Vanguard Total Stock Market Index Fund ETF Shares at 80% and the Vanguard Total International Stock Index Fund ETF Shares at 20%. This allocation heavily favors domestic equities, reflecting a common strategy among US investors seeking broad market exposure. While the portfolio is diversified, its concentration in US equities may limit exposure to international growth opportunities. To enhance diversification, consider gradually increasing international exposure or adding other asset classes like bonds or real estate, which can provide stability during market downturns.
Growth
Historically, the portfolio has delivered a solid Compound Annual Growth Rate (CAGR) of 12.23%, demonstrating strong growth potential. However, it experienced a significant maximum drawdown of -34.75%, indicating vulnerability during market downturns. This performance aligns with the broader market trends, as US equities have generally performed well over the past decade. To mitigate potential future drawdowns, consider incorporating assets with lower volatility or exploring hedging strategies. Remember, past performance does not guarantee future results, so diversification remains key to managing risk.
Projection
The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a promising outlook with a median return of 261.1% and a 67th percentile return of 398.9%. With 974 out of 1,000 simulations showing positive returns, the portfolio appears well-positioned for future growth. However, it's important to note that these projections are based on historical patterns and may not account for future market changes. Regularly reviewing and adjusting your portfolio to align with market conditions and personal risk tolerance can help optimize potential outcomes.
Asset classes
- Stocks 99%
- Cash 1%
The portfolio is predominantly invested in stocks, accounting for 99.43% of the allocation, which provides substantial growth potential. This heavy reliance on equities may lead to higher volatility, especially during market downturns. While this aligns with a growth-focused strategy, diversifying into other asset classes like bonds or real estate could help stabilize returns. Such diversification can reduce overall portfolio risk and provide income through interest or rental yields, offering a buffer against stock market fluctuations.
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%
The portfolio's sectoral allocation is diverse, with a notable concentration in technology at 27.25%, followed by financial services and healthcare. This composition mirrors common benchmarks, indicating a balanced approach to sector exposure. However, the tech-heavy allocation may lead to increased volatility, particularly during periods of interest rate changes. To manage sector-specific risks, consider periodically rebalancing to maintain alignment with your risk tolerance and market trends. This approach ensures that no single sector disproportionately impacts your overall performance.
Regions
- North America 81%
- Europe Developed 8%
- Asia Emerging 3%
- Japan 3%
- Asia Developed 2%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is heavily weighted towards North America, comprising 81.22% of the allocation, with limited exposure to other regions. This concentration may limit the benefits of geographic diversification, such as reduced risk from regional economic downturns. To enhance global exposure, consider increasing investments in emerging markets or developed regions outside North America. This strategy can capture diverse growth opportunities and mitigate risks associated with domestic market fluctuations, aligning with a more globally diversified benchmark.
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 appears well-optimized along the Efficient Frontier, offering a favorable risk-return balance given its current composition. The Efficient Frontier represents the set of optimal portfolios that offer the highest expected return for a defined level of risk. While this portfolio is aligned with these principles, regularly reassessing your risk tolerance and market conditions is essential. Adjusting allocations within the existing asset classes can further enhance efficiency, ensuring the portfolio continues to meet your financial objectives without unnecessary risk exposure.
Dividends
- Vanguard Total Stock Market Index Fund ETF Shares 1.30%
- Vanguard Total International Stock Index Fund ETF Shares 3.40%
- Weighted yield (per year) 1.72%
The portfolio's total dividend yield stands at 1.72%, with the Vanguard Total International Stock Index Fund ETF Shares contributing a higher yield of 3.4%. Dividends can provide a steady income stream, which is particularly beneficial for investors seeking regular cash flow. While the yield is modest, reinvesting dividends can significantly enhance long-term returns through compounding. Consider evaluating the role of dividends in your overall strategy and, if necessary, explore higher-yielding assets to boost income without compromising growth potential.
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 impressively low costs, with a total expense ratio (TER) of 0.04%. Low fees are crucial for long-term growth as they minimize the drag on returns. This cost efficiency aligns well with best practices, ensuring more of your investment returns are retained. While the current costs are favorable, it's always wise to periodically review fees to ensure they remain competitive. If opportunities arise to switch to even lower-cost options without sacrificing performance, consider doing so to maximize your investment's potential.
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