Cautious Investor Portfolio with Moderate Diversification and Low Costs Balances US Exposure and Treasury Holdings

Report created on Nov 24, 2024

Risk profile Info

3/7
Cautious
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio has a cautious risk profile, with a 60% allocation to the Vanguard Total Stock Market Index Fund ETF. This provides broad exposure to the US stock market. Additionally, 20% is allocated to the iShares 0-3 Month Treasury Bond ETF, offering stability and liquidity. The remaining 20% is split between the Vanguard Intermediate-Term Treasury Index Fund ETF and the Vanguard Total International Stock Index Fund ETF, providing a mix of US Treasury exposure and international stocks. This composition aims to balance growth with stability, suitable for an investor seeking moderate diversification while maintaining a cautious stance.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 11.96%. The maximum drawdown was -20.9%, indicating the worst peak-to-trough decline. This suggests that while there is potential for strong returns, the portfolio can experience significant downturns. Notably, 90% of the returns were generated in just 26 days, emphasizing the importance of staying invested during volatile periods. This performance indicates that the current allocation has been effective in capturing growth while managing risk, aligning with a cautious investment strategy.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was analyzed. This simulation uses random sampling to project potential future returns, providing a range of possible outcomes. The results show a 67% probability of achieving a return of 216.24% or higher, while the 5th percentile shows a 12.38% return. The annualized return across all simulations is 7.51%. These projections suggest that while the portfolio has potential for substantial growth, there is also a possibility of lower returns, reflecting the inherent uncertainty in investing.

Asset classes Info

  • Stocks
    70%
  • Cash
    20%
  • Bonds
    10%

The portfolio is primarily composed of stocks, making up 69.72% of the allocation, followed by cash at 20.24% and bonds at 10.03%. This allocation reflects a cautious approach, balancing growth potential with stability. The significant stock allocation provides the opportunity for capital appreciation, while the cash and bond components offer a buffer against market volatility. To maintain this balance, it's important to periodically review the allocation to ensure it aligns with the investor's risk tolerance and financial goals, making adjustments as necessary to stay on track.

Sectors Info

  • Technology
    20%
  • Financials
    10%
  • Health Care
    8%
  • Consumer Discretionary
    7%
  • Industrials
    7%
  • Telecommunications
    6%
  • Consumer Staples
    4%
  • Energy
    3%
  • Real Estate
    2%
  • Basic Materials
    2%
  • Utilities
    2%

Sector allocation shows a diversified exposure across various industries, with technology leading at 19.76%. Financial services and healthcare follow, comprising 10.11% and 7.83% respectively. This sector diversification helps mitigate risks associated with individual industries, providing a balanced approach to capturing growth opportunities. However, it's important to monitor sector performance and economic trends that may impact specific industries. Adjustments may be needed over time to ensure the portfolio remains aligned with market conditions and the investor's objectives, without overexposing to any single sector.

Regions Info

  • North America
    60%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is heavily weighted towards North America, with 60.49% exposure. This reflects a strong focus on the US market, providing familiarity and stability. However, there is limited exposure to other regions, with Europe Developed at 4.09% and Asia Emerging at 1.65%. While this concentration in North America can provide stability, it may limit potential growth opportunities in other regions. To enhance diversification, consider gradually increasing exposure to other geographic areas, which could benefit from differing economic cycles and growth prospects.

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 optimization analysis suggests there is room for improvement in terms of efficiency. By moving along the efficient frontier, the portfolio could achieve a higher expected return of 2.61% while maintaining the same risk level. Alternatively, a more conservative approach could be adopted by reducing risk, which may involve adjusting the asset allocation towards more stable investments. However, before making changes, it's crucial to ensure that any adjustments align with the investor's risk tolerance and financial goals. A focus on maintaining diversification and low costs should remain a priority.

Dividends Info

  • iShares® 0-3 Month Treasury Bond ETF 5.20%
  • Vanguard Intermediate-Term Treasury Index Fund ETF Shares 3.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 2.48%

The portfolio's dividend yield stands at 2.48%, contributing to overall returns. The iShares 0-3 Month Treasury Bond ETF offers the highest yield at 5.2%, providing a steady income stream. Meanwhile, the Vanguard Total Stock Market Index Fund ETF yields 1.3%, offering modest income alongside growth potential. Dividends can be an important component of total returns, especially in a cautious portfolio. Reinvesting dividends can enhance compounding effects over time, while providing a buffer during market downturns. It's beneficial to monitor dividend yields and consider reinvestment strategies to maximize long-term growth.

Ongoing product costs Info

  • iShares® 0-3 Month Treasury Bond ETF 0.07%
  • Vanguard Intermediate-Term Treasury Index Fund ETF Shares 0.04%
  • 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's total expense ratio (TER) is a low 0.04%, indicating cost-efficient management. Low costs are crucial for maximizing net returns, as fees can significantly impact compounding over time. Each ETF in the portfolio maintains competitive expense ratios, with the Vanguard Total Stock Market Index Fund ETF at just 0.03%. This cost-effectiveness aligns well with a cautious investment approach, ensuring that more of the portfolio's returns are retained. It's important to regularly review fees and expenses, seeking opportunities to minimize costs while maintaining a diversified and balanced portfolio.

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