A balanced portfolio with strong North American focus and high correlation between assets

Report created on Feb 21, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is composed of two ETFs: the Vanguard FTSE All-World UCITS ETF at 70% and the Vanguard S&P 500 UCITS Acc at 30%. This allocation leans heavily towards equities, which suits a balanced risk profile. Compared to a typical balanced benchmark, which might include bonds or other asset classes, this portfolio is more equity-centric. This high equity exposure can lead to higher returns, but also introduces more volatility. Consider diversifying into other asset classes, such as fixed income, to mitigate risk and enhance stability over time.

Growth Info

Historically, this portfolio has shown a strong CAGR of 13.28%, indicating robust growth. However, it also experienced a significant maximum drawdown of -33.75%, highlighting potential volatility. Compared to benchmarks, the growth rate is impressive, but the drawdown suggests a need for caution. While historical performance is encouraging, remember that past results do not guarantee future success. To manage risk, consider strategies like dollar-cost averaging or setting aside a cash reserve to navigate market downturns.

Projection Info

Forward projections using Monte Carlo simulations suggest a range of potential outcomes, with a median return of 469.5%. The simulations are based on historical data, providing a glimpse into possible future performance. However, they cannot predict exact outcomes due to market unpredictability. With 996 simulations showing positive returns, the outlook is optimistic. Despite this, it's crucial to remain cautious and regularly review your portfolio to adapt to changing market conditions and personal financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely invested in equities, lacking exposure to other asset classes like bonds or real estate. While equities offer growth potential, this single asset class focus limits diversification and increases volatility. A more diversified portfolio typically includes a mix of asset classes to balance risk and return. Consider incorporating fixed income or alternative investments to achieve a more balanced risk profile and potentially smoother returns over time.

Sectors Info

  • Technology
    28%
  • Financials
    16%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    9%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

Sector allocation is diverse, with a notable 28% in technology and significant portions in financial services and consumer cyclicals. This distribution is more concentrated in tech compared to typical benchmarks, which can lead to higher volatility, especially during tech market downturns. A more balanced sector allocation can help mitigate sector-specific risks. Consider adjusting sector weights to align more closely with broader market indices, which can provide stability and capture a wider array of economic growth drivers.

Regions Info

  • North America
    77%
  • Europe Developed
    10%
  • Asia Emerging
    4%
  • Japan
    4%
  • Asia Developed
    3%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

The portfolio is heavily weighted towards North America at 77%, with limited exposure to other regions. This geographic concentration may expose the portfolio to regional economic risks. Compared to global benchmarks, this allocation is less diversified. Consider increasing exposure to regions like Europe, Asia, or emerging markets to enhance geographic diversification and reduce dependency on North American markets. This could provide a buffer against regional downturns and capture growth in other parts of the world.

Market capitalization Info

  • Mega-cap
    47%
  • Large-cap
    35%
  • Mid-cap
    17%

The portfolio is dominated by large-cap stocks, with 47% in mega caps and 35% in large caps. This focus on bigger companies offers stability and reliability, as these firms are typically well-established. However, it limits exposure to potential high-growth opportunities found in smaller companies. Including mid-cap and small-cap stocks can enhance diversification and potentially boost returns, as these companies often have more room for growth. Balancing market capitalizations could improve the portfolio's risk-return profile.

Redundant positions Info

  • Vanguard FTSE All-World UCITS ETF USD Accumulation
    Vanguard S&P 500 UCITS Acc
    High correlation

The portfolio's assets are highly correlated, meaning they tend to move together. This correlation limits diversification benefits, as both ETFs are likely affected similarly by market changes. During downturns, this could amplify losses. To achieve better diversification, consider including assets with lower correlation, such as bonds or alternative investments. This could help smooth returns and reduce overall portfolio risk, providing a more resilient structure against market volatility.

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 concept, which seeks the best possible risk-return ratio. However, the high correlation between the two ETFs limits diversification benefits. Before optimization, consider replacing overlapping assets with those offering different risk and return characteristics. This could enhance the portfolio's efficiency, ensuring that each asset contributes uniquely to the overall risk-return balance. Remember, efficiency focuses on maximizing returns for a given level of risk, not on diversification.

Ongoing product costs Info

  • Vanguard S&P 500 UCITS Acc 0.07%
  • Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
  • Weighted costs total (per year) 0.18%

The portfolio benefits from low costs, with a total expense ratio (TER) of 0.18%. Low fees are crucial for long-term growth, as they minimize the drag on returns. Compared to industry averages, these costs are competitive, supporting better net returns. Maintaining a focus on cost-efficiency is wise, as even small fee reductions can significantly impact overall performance. Regularly reviewing and optimizing fund choices can ensure you keep costs in check, maximizing your investment's potential over time.

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