Balanced portfolio with a strong emphasis on US equities and moderate risk exposure

Report created on Dec 6, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio comprises four ETFs, with a significant focus on equities, particularly US stocks. The Vanguard S&P 500 ETF holds the largest share at 50%, followed by the Vanguard Growth Index Fund ETF Shares at 25%. The Schwab U.S. Dividend Equity ETF adds a dividend-focused component at 15%, while the Vanguard Total Bond Market Index Fund ETF Shares offers a modest 10% allocation to bonds. This composition suggests a preference for growth, with a small portion dedicated to income and stability through bonds. A more diversified allocation could help balance risk and return.

Growth Info

Historically, the portfolio has shown a compound annual growth rate (CAGR) of 13.4%, which is impressive. However, it experienced a maximum drawdown of 31.06%, indicating significant volatility during downturns. The performance is concentrated, with just 35 days accounting for 90% of returns, highlighting the impact of market timing. While past performance is not indicative of future results, understanding these trends can help manage expectations. Introducing more stable assets could reduce drawdowns and smooth returns over time.

Projection Info

The forward projection uses Monte Carlo simulations to estimate potential outcomes based on historical data. With 1,000 simulations, the portfolio shows a median potential return of 337.98% over the investment horizon. However, the 5th percentile outcome is significantly lower at 63.08%, indicating some risk of underperformance. While the annualized return of 12.07% in simulations is promising, it's crucial to remember that these projections are not guarantees. Adjusting the portfolio to enhance diversification could potentially improve the range of outcomes.

Asset classes Info

  • Stocks
    90%
  • Bonds
    10%

The portfolio is heavily weighted towards stocks, with nearly 90% allocated to equities and only about 10% to bonds. This skew towards equities indicates a focus on growth, but it also increases exposure to market volatility. While stocks can offer higher returns, bonds provide stability and income, which can cushion the portfolio during market downturns. Introducing a more balanced mix of asset classes could reduce risk and enhance long-term returns, especially for investors with a lower risk tolerance.

Sectors Info

  • Technology
    31%
  • Financials
    11%
  • Consumer Discretionary
    10%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    2%
  • Real Estate
    2%
  • Utilities
    1%

Sector allocation is dominated by technology at 30.55%, followed by financial services and consumer cyclicals. This concentration in technology suggests a reliance on growth from this sector, which can be volatile. While other sectors like healthcare and industrials are present, their smaller allocations may limit their impact. A more balanced sector allocation could reduce risk by spreading exposure across different economic areas. Consider increasing allocations to underrepresented sectors to mitigate potential downturns in dominant sectors.

Regions Info

  • North America
    90%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 89.59% of assets. This concentration exposes the portfolio to regional risks, such as economic downturns or policy changes in the US. While the US market offers growth potential, diversifying into other regions could provide exposure to different economic cycles and growth opportunities. Introducing more international equities could enhance diversification and potentially improve risk-adjusted returns.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Growth Index Fund ETF Shares
    High correlation

The Vanguard S&P 500 ETF and Vanguard Growth Index Fund ETF Shares are highly correlated, meaning they tend to move together. This correlation reduces the diversification benefits within the portfolio, as similar assets may react similarly to market events. Diversification aims to spread risk across different assets that do not move in tandem. To enhance diversification, consider replacing one of these ETFs with a less correlated asset, potentially from a different sector or asset class.

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.

Portfolio optimization can be achieved through the Efficient Frontier, which seeks the best possible risk-return ratio. Currently, the portfolio could benefit from adjustments to reduce overlap and improve diversification. By reallocating among existing assets, it's possible to achieve a more efficient mix without introducing new investments. This process involves weighing potential returns against risk, aiming for the highest return per unit of risk. Regular rebalancing is key to maintaining optimal efficiency.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Schwab U.S. Dividend Equity ETF 2.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.46%

The portfolio's dividend yield stands at 1.46%, with contributions primarily from the Schwab U.S. Dividend Equity ETF and the Vanguard Total Bond Market Index Fund ETF Shares. While the yield is modest, it provides some income, which can be appealing for investors seeking regular cash flow. Increasing exposure to higher-yielding assets could enhance income, but it may also increase risk. A balanced approach is essential to maintain growth potential while boosting dividend income.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is low at 0.04%, which is beneficial for long-term returns. Lower costs mean more of the portfolio's returns are retained by the investor rather than going towards fees. While the current cost structure is efficient, it's important to regularly review expense ratios, especially when considering new investments. Minimizing costs is a straightforward way to enhance net returns over time, allowing more capital to compound.

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