A balanced portfolio with strong diversification but concentrated in North American equities

Report created on Feb 1, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio consists of four Vanguard ETFs, dominated by the S&P 500 ETF at 60%. The Total International Stock Index Fund ETF makes up 20%, while the Small-Cap and Mid-Cap Index Funds each contribute 10%. This composition leans heavily on large-cap U.S. equities, reflecting a common benchmark for balanced growth. Such a structure can benefit from the stability of established U.S. companies while still capturing growth from international and smaller-cap stocks. To further enhance diversification, consider increasing non-U.S. exposure or adding other asset classes like bonds.

Growth Info

Historically, the portfolio has performed well, with a CAGR of 12.13%, indicating strong growth over time. However, it experienced a significant maximum drawdown of -35.18%, highlighting potential volatility. Compared to benchmarks, this performance is commendable, especially given its broad diversification. While past performance is not a guarantee of future results, it suggests that the portfolio is on a solid growth path. To mitigate drawdowns, consider incorporating more defensive assets or adjusting asset allocations to reduce volatility.

Projection Info

Monte Carlo simulations, which use historical data to predict future outcomes, show a wide range of potential results for this portfolio. The 50th percentile projects a 272.3% return, while the 5th percentile suggests a 12.5% return. With 964 out of 1,000 simulations showing positive returns, the outlook is optimistic. However, it's essential to remember that these simulations rely on past data and can't predict future market conditions accurately. Regularly reviewing and adjusting the portfolio can help manage risk and align with changing market dynamics.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is almost entirely allocated to stocks, with a small 1% cash position. This heavy stock allocation aligns with a growth-focused strategy, offering potential for high returns but also increased risk. Compared to balanced benchmarks, which often include bonds, this portfolio may be more volatile. To improve risk management, consider diversifying into other asset classes, such as bonds or real estate, which can provide stability and income during market downturns.

Sectors Info

  • Technology
    26%
  • Financials
    15%
  • Industrials
    11%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Real Estate
    3%
  • Basic Materials
    3%
  • Utilities
    3%

Sector allocation is diverse, with technology leading at 26%, followed by financial services and industrials. This distribution is similar to major indices, providing broad exposure to the economy's key sectors. However, the tech-heavy focus may lead to higher volatility, especially during periods of regulatory scrutiny or interest rate changes. Balancing sector weights could enhance stability and reduce risk. Consider increasing exposure to defensive sectors like healthcare or utilities to offset potential tech sector fluctuations.

Regions Info

  • North America
    81%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

The portfolio's geographic exposure is heavily tilted towards North America, accounting for 81% of assets. This concentration limits global diversification and increases vulnerability to U.S. market downturns. Compared to global benchmarks, this is a significant overexposure. Increasing allocations to regions like Europe, Asia, or emerging markets can enhance diversification and capture growth opportunities outside the U.S. Consider ETFs or funds that focus on these regions to balance geographic risk.

Market capitalization Info

  • Mega-cap
    37%
  • Large-cap
    28%
  • Mid-cap
    26%
  • Small-cap
    7%
  • Micro-cap
    1%

The portfolio's market capitalization is predominantly in mega and big-cap stocks, totaling 65%. This focus on large companies offers stability and lower volatility compared to small-cap stocks. However, the limited exposure to small and micro caps might miss out on higher growth potential. Balancing market cap exposure can provide a mix of stability and growth. Consider increasing small-cap allocations or exploring mid-cap opportunities to capture diverse growth drivers across different company sizes.

Redundant positions Info

  • Vanguard Mid-Cap Index Fund ETF Shares
    Vanguard Small-Cap Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlation among its U.S.-focused ETFs, particularly the S&P 500, Mid-Cap, and Small-Cap funds. High correlation means these assets tend to move together, reducing diversification benefits during market downturns. By diversifying into less correlated assets, the portfolio can better withstand volatility. Consider adding international or sector-specific funds that don't closely follow U.S. market trends to enhance diversification and manage 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 on the Efficient Frontier, which seeks the best risk-return ratio for a given set of assets. Currently, the portfolio's high correlation among U.S. equities may limit its efficiency. Adjusting allocations to include less correlated assets could improve this ratio. Efficiency focuses on maximizing returns for a given level of risk, not necessarily diversification. Consider optimizing allocations within existing assets to achieve a more efficient portfolio.

Dividends Info

  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.20%
  • Weighted yield (per year) 1.63%

The portfolio's dividend yield stands at 1.63%, primarily driven by the Total International Stock Index Fund. Dividends provide a steady income stream, which is beneficial for investors seeking regular cash flow. Compared to growth-focused portfolios, this yield is moderate. To increase income, consider reallocating towards higher-yielding sectors or funds. However, ensure that any changes align with overall investment goals and risk tolerance.

Ongoing product costs Info

  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The portfolio's costs are impressively low, with a total expense ratio of 0.04%. Low costs enhance long-term returns by minimizing the drag on performance. This aligns well with best practices for cost-efficient investing. Vanguard's reputation for low-cost funds supports this strategy. Continually monitoring and managing costs ensures that expenses remain minimal. If considering new investments, prioritize those with competitive expense ratios to maintain this cost advantage.

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