A balanced portfolio with a focus on US equities and low-cost ETFs
Report created on Jan 4, 2025Risk profile
4/7
Diversification profile
3/5
Positions
-
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 70.00% -
SC Schwab U.S. Large-Cap Growth ETF
SCHG - US8085243009 15.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 10.00% -
BN Vanguard Total Bond Market Index Fund ETF Shares
BND - US9219378356 5.00%
The portfolio is heavily weighted towards equities, with 70% in the Vanguard Total Stock Market Index Fund ETF, emphasizing US equities. The Schwab U.S. Large-Cap Growth ETF adds another 15% to large-cap stocks, while the Vanguard Total International Stock Index Fund ETF provides 10% exposure to international equities. A small allocation of 5% is in bonds through the Vanguard Total Bond Market Index Fund ETF. This composition suggests a growth-oriented strategy, common in balanced portfolios, but could benefit from greater diversification into other asset classes like bonds or real estate to enhance stability.
Growth
Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 13.03%. This indicates strong growth potential, although it experienced a maximum drawdown of -33.3%, reflecting significant volatility. This performance aligns with typical equity-heavy portfolios, which tend to offer higher returns but with increased risk. Comparing this to a benchmark like the S&P 500, which has a similar risk-return profile, the portfolio's performance is commendable. However, investors should be prepared for periods of substantial market downturns and consider strategies to mitigate such risks.
Projection
The Monte Carlo simulation, a method that uses historical data to forecast future outcomes, suggests a wide range of potential future returns. With 1,000 simulations, the portfolio shows a 10.4% annualized return, with a 5th percentile return of 18.35% and a 67th percentile return of 354.14%. While promising, it's important to remember that these projections are based on past data and do not guarantee future performance. Investors should use these insights to understand potential risks and returns, but also remain flexible to adjust strategies as market conditions change.
Asset classes
- Stocks 95%
- Bonds 5%
The portfolio is predominantly invested in stocks, accounting for 94.6% of the total allocation, with only 4.9% in bonds. This skew towards equities suggests a focus on capital appreciation rather than income generation or preservation. While this can drive growth, it may expose the portfolio to higher volatility. Compared to a typical balanced benchmark, which might have a more even split between stocks and bonds, this portfolio could benefit from increased bond exposure to provide a buffer during market downturns and reduce overall risk.
Sectors
- Technology 30%
- Financials 13%
- Health Care 10%
- Consumer Discretionary 10%
- Telecommunications 8%
- Industrials 8%
- Consumer Staples 5%
- Energy 3%
- Basic Materials 2%
- Real Estate 2%
- Utilities 2%
The sector allocation shows a strong tilt towards technology at 30%, followed by financial services and healthcare. This concentration in technology may lead to higher volatility, especially during periods of regulatory changes or tech sector downturns. While sector diversification is present, with exposure to 11 sectors, the portfolio could benefit from a more balanced approach. Aligning sector weights closer to a broad market index could enhance stability and reduce sector-specific risks, ensuring a more resilient portfolio against market fluctuations.
Regions
- North America 85%
- Europe Developed 4%
- Asia Emerging 2%
- Japan 2%
- Asia 1%
- Australasia 1%
The portfolio has a significant geographic bias towards North America, comprising 85.4% of the allocation. This heavy focus on the US market could expose the portfolio to region-specific risks, such as economic downturns or policy changes in the US. While there is some international exposure, it is limited, with under 5% in Europe and minimal allocations to other regions. Broadening geographic diversification can mitigate regional risks and capture growth opportunities in emerging and developed markets outside North America.
Redundant positions
-
High correlationVanguard Total Stock Market Index Fund ETF SharesSchwab U.S. Large-Cap Growth ETF
The portfolio's asset correlation indicates that the Vanguard Total Stock Market Index Fund ETF and the Schwab U.S. Large-Cap Growth ETF are highly correlated. This means they tend to move in the same direction, which can limit diversification benefits. In times of market stress, such high correlation can lead to synchronized losses, reducing the portfolio's resilience. To enhance diversification, consider reducing overlap by introducing assets with low correlation, such as international equities or alternative investments, to improve risk management.
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 current structure could be optimized using the Efficient Frontier, a concept that helps find the best possible risk-return ratio given a set of investments. However, before optimizing, addressing the high correlation between certain assets is crucial, as it can limit diversification benefits. By adjusting allocations to reduce overlap and introducing less correlated assets, the portfolio can achieve a more efficient balance of risk and return. This approach ensures that the portfolio is well-positioned to meet its investment objectives while managing potential risks.
Dividends
- Vanguard Total Bond Market Index Fund ETF Shares 3.70%
- Schwab U.S. Large-Cap Growth ETF 0.40%
- Vanguard Total Stock Market Index Fund ETF Shares 1.30%
- Vanguard Total International Stock Index Fund ETF Shares 3.40%
- Weighted yield (per year) 1.50%
The portfolio's overall dividend yield stands at 1.5%, with the Vanguard Total Bond Market Index Fund ETF contributing the highest yield at 3.7%. This indicates a modest income component, typical for growth-oriented portfolios. While dividends can provide a steady income stream, the focus here is more on capital appreciation. Investors seeking higher income might consider increasing exposure to high-dividend-paying assets. However, balancing yield with growth potential is crucial to maintain the portfolio's overall return objectives.
Ongoing product costs
- Vanguard Total Bond Market Index Fund ETF Shares 0.03%
- Schwab U.S. Large-Cap Growth ETF 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 enjoys impressively low costs, with a Total Expense Ratio (TER) of 0.04%. This low-cost structure is beneficial for long-term performance, as it minimizes the drag on returns. Investing in low-cost ETFs like those in the portfolio helps retain more of the investment gains. Keeping costs low is a key advantage, but it's important to ensure that low fees do not come at the expense of diversification or other investment goals. Regularly reviewing and comparing costs with other investment options can ensure continued cost efficiency.
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