A balanced portfolio with high US equity exposure and moderate dividend focus
Report created on Dec 6, 2024Risk profile
4/7
Diversification profile
1/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 40.00% -
SC Schwab U.S. Dividend Equity ETF
SCHD - US8085247976 30.00% -
BN Vanguard Total Bond Market Index Fund ETF Shares
BND - US9219378356 10.00% -
PF iShares Preferred and Income Securities ETF
PFF - US4642886877 10.00% -
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 10.00%
The portfolio is heavily weighted towards equities, with 80% of assets in stock-related ETFs. This includes a significant 40% allocation to the Vanguard S&P 500 ETF, which provides broad exposure to large-cap U.S. stocks. The Schwab U.S. Dividend Equity ETF adds a focus on dividend-paying stocks, making up 30% of the portfolio. Fixed income is represented by the Vanguard Total Bond Market Index Fund ETF, accounting for 10%, and the iShares Preferred and Income Securities ETF, also at 10%. This composition suggests a balanced approach, prioritizing growth through equities while maintaining some stability with bonds and income securities.
Growth
Historically, the portfolio has demonstrated strong performance with a compound annual growth rate (CAGR) of 11.42%. This impressive return is tempered by a maximum drawdown of -31.2%, indicating significant volatility during market downturns. The fact that 90% of returns were achieved in just 32 days underscores the portfolio's reliance on key market movements. While past performance is not indicative of future results, understanding these trends can help set realistic expectations. Investors should be prepared for periods of volatility and consider whether this aligns with their risk tolerance.
Projection
Monte Carlo simulations, which use historical data to project future outcomes, suggest a wide range of potential returns. With 1,000 simulations, the portfolio's annualized return averaged 9.87%. The 5th percentile outcome showed a modest 24.5% gain, while the 67th percentile projected a substantial 324.37% increase. Although these simulations offer valuable insights, they are based on past market behavior and cannot guarantee future performance. Investors should use these projections as a guide while considering their personal risk tolerance and financial goals.
Asset classes
- Stocks 80%
- Bonds 10%
- No data 10%
The portfolio is predominantly composed of stocks, representing over 80% of the allocation. Bonds and preferred securities make up nearly 20%, providing some diversification and income stability. While the heavy equity focus can drive growth, it also introduces higher volatility. Diversifying further across asset classes could reduce risk and enhance stability. Investors might consider adding alternative investments or increasing bond exposure to balance the portfolio's risk-return profile better.
Sectors
- Technology 19%
- Financials 13%
- Health Care 11%
- Utilities 10%
- Consumer Discretionary 8%
- Industrials 7%
- Consumer Staples 7%
- Telecommunications 6%
- Energy 6%
- Basic Materials 1%
- Real Estate 1%
The sectoral allocation is concentrated, with technology, financial services, and healthcare comprising the largest portions. Technology alone accounts for nearly 20%, which could lead to significant volatility due to the sector's inherent risk. While sector concentration can enhance returns if those sectors perform well, it also increases vulnerability to sector-specific downturns. A more balanced sector allocation can mitigate this risk and provide smoother returns. Investors should consider rebalancing to achieve a more diversified sector exposure.
Regions
- North America 90%
Geographically, the portfolio is heavily skewed towards North America, with nearly 90% exposure. This concentration limits diversification benefits that come from investing in international markets. While U.S. equities have historically performed well, global diversification can reduce risk and capture growth opportunities in emerging markets. Investors might consider increasing exposure to international markets to enhance diversification and potentially improve risk-adjusted returns.
Redundant positions
-
High correlationVanguard Total Stock Market Index Fund ETF SharesVanguard S&P 500 ETF
The portfolio contains highly correlated assets, particularly the Vanguard Total Stock Market Index Fund ETF Shares and the Vanguard S&P 500 ETF. High correlation means these assets tend to move in tandem, offering limited diversification benefits. By reducing overlap and incorporating less correlated assets, investors can lower portfolio risk and improve overall stability. This involves identifying assets with different performance drivers or market exposures to achieve a more balanced risk profile.
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 using the Efficient Frontier, which identifies the best risk-return ratio based on current assets. By adjusting allocations, investors can aim for maximum returns for a given level of risk. However, optimization should focus on reducing highly correlated assets, as highlighted earlier. This approach seeks to enhance efficiency, not merely diversification. Investors should regularly review and adjust allocations to maintain an optimal balance that aligns with their risk tolerance and investment goals.
Dividends
- Vanguard Total Bond Market Index Fund ETF Shares 3.60%
- iShares Preferred and Income Securities ETF 5.60%
- Schwab U.S. Dividend Equity ETF 2.50%
- Vanguard S&P 500 ETF 1.20%
- Vanguard Total Stock Market Index Fund ETF Shares 1.20%
- Weighted yield (per year) 2.27%
The portfolio offers a moderate dividend yield of 2.27%, with the iShares Preferred and Income Securities ETF contributing the highest yield at 5.6%. Dividends provide a steady income stream and can cushion against market volatility. However, the focus on dividend-paying stocks may limit growth potential compared to a purely growth-oriented strategy. Investors should assess whether the current yield aligns with their income needs and consider balancing dividends with growth prospects for long-term wealth accumulation.
Ongoing product costs
- Vanguard Total Bond Market Index Fund ETF Shares 0.03%
- iShares Preferred and Income Securities ETF 0.46%
- Schwab U.S. Dividend Equity ETF 0.06%
- Vanguard S&P 500 ETF 0.03%
- Vanguard Total Stock Market Index Fund ETF Shares 0.03%
- Weighted costs total (per year) 0.08%
The portfolio's total expense ratio (TER) is relatively low at 0.08%, reflecting a cost-effective investment approach. Lower costs enhance net returns, especially over the long term. However, the iShares Preferred and Income Securities ETF has a higher expense ratio of 0.46%, which could be optimized. Investors should regularly review expense ratios and consider lower-cost alternatives without compromising on quality or diversification, as reducing costs can significantly impact long-term performance.
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