Balanced Risk Portfolio with Broad Diversification and High Correlation Among Assets

Report created on Jul 5, 2024

Risk profile Info

4/7
Balanced
← Less risk More risk →

Diversification profile Info

4/5
Broadly Diversified
← Less diversification More diversification →

Positions

The portfolio comprises four Vanguard ETFs, with a significant portion invested in the Vanguard S&P 500 ETF at 50%. This is complemented by the Vanguard Total International Stock Index Fund, Vanguard Information Technology Index Fund, and Vanguard Total World Stock Index Fund. Such a composition indicates a strong focus on equity investments, with a diverse mix of domestic and international exposure. The portfolio is well-diversified across different sectors and geographies, which is crucial for spreading risk. However, it's heavily weighted towards equities, which could lead to higher volatility.

Growth Info

Historically, the portfolio has delivered a compound annual growth rate (CAGR) of 13.05%, with a maximum drawdown of -33.41%. This suggests that while the portfolio has performed well over time, it has also experienced significant downturns. Understanding these historical metrics is essential for gauging how the portfolio might behave in different market conditions. Given this performance, it's important to consider whether this level of volatility aligns with long-term investment goals and risk tolerance. Maintaining a balanced approach is key to navigating both growth and downturns effectively.

Projection Info

Utilizing a Monte Carlo simulation with 1,000 iterations, the portfolio shows promising potential. A Monte Carlo simulation is a method to predict future outcomes by running numerous scenarios. The median projection suggests a 406.18% increase in portfolio value, with a high probability of positive returns. This forward-looking analysis provides a range of possible outcomes, helping to understand the potential volatility and growth. While these projections are encouraging, it's crucial to remember that they are based on historical data and assumptions, which may not fully capture future market dynamics.

Asset classes Info

  • Stocks
    99%

The portfolio is predominantly invested in stocks, with a minor allocation to cash and other categories. This heavy stock allocation aligns with a growth-oriented strategy, but it also introduces more risk. Understanding the implications of such a concentration is vital for managing risk and ensuring alignment with investment objectives. Diversifying into other asset classes like bonds or real estate could potentially lower risk and stabilize returns. Evaluating the risk-return trade-off is essential to ensure the portfolio remains resilient across various market cycles.

Sectors Info

  • Technology
    38%
  • Financials
    13%
  • Health Care
    9%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

Sector allocation reveals a strong emphasis on technology, accounting for over 37% of the portfolio. Other significant sectors include financial services, healthcare, and consumer cyclicals. This allocation reflects a growth-focused strategy, capitalizing on sectors with high potential returns. However, this concentration can lead to sector-specific risks. It's important to regularly review sector exposures to ensure diversification and mitigate risks associated with overexposure to any single sector. Balancing sector weights can help achieve a more stable and resilient portfolio.

Regions Info

  • North America
    76%
  • Europe Developed
    10%
  • Asia Emerging
    4%
  • Japan
    4%
  • Asia Developed
    3%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily weighted towards North America, with 75.83% allocation, followed by Europe and Asia. This reflects a bias towards developed markets, which can provide stability but may miss out on growth opportunities in emerging markets. Understanding geographic exposure is crucial for managing currency and geopolitical risks. Diversifying across regions can help capture growth potential in different markets while reducing exposure to region-specific risks. Regularly reassessing geographic allocations ensures alignment with global economic trends and investment goals.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Information Technology Index Fund ETF Shares
    Vanguard Total World Stock Index Fund ETF Shares
    Vanguard Total International Stock Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation among its assets, particularly the Vanguard S&P 500 ETF and other ETFs. High correlation means these assets tend to move in the same direction, reducing diversification benefits. Recognizing this correlation is important for managing risk and enhancing portfolio stability. To improve diversification, consider introducing assets with lower correlation to existing holdings. This can help mitigate portfolio volatility and enhance long-term returns. Regularly reviewing correlations ensures the portfolio remains well-diversified and resilient to market fluctuations.

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.

Before optimizing for efficiency, addressing the high correlation among assets is crucial to enhance diversification. Moving along the efficient frontier involves balancing risk and return, which can be achieved by adjusting asset allocations. For a riskier portfolio, increase exposure to assets with higher expected returns. Conversely, for a more conservative approach, consider increasing allocations to lower-risk assets. Once correlation issues are addressed, optimizing along the efficient frontier can help achieve a portfolio that aligns with risk tolerance and financial goals, ensuring a well-rounded investment strategy.

Dividends Info

  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total World Stock Index Fund ETF Shares 1.80%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.56%

The portfolio offers a total dividend yield of 1.56%, with contributions from all four ETFs. This yield provides a modest income stream, which can be an important component of total returns, especially during market downturns. Understanding dividend yields is essential for assessing income potential and ensuring alignment with financial goals. While dividends are a valuable source of income, it's important to balance yield with growth potential. Regularly reviewing dividend contributions can help maintain a balanced approach between income generation and capital appreciation.

Ongoing product costs Info

  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

With a total expense ratio (TER) of 0.06%, the portfolio is cost-effective, reflecting the low-cost nature of Vanguard ETFs. Keeping costs low is crucial for maximizing net returns over time. Understanding expense ratios is important for evaluating the efficiency of an investment strategy. While this portfolio is cost-efficient, it's important to remain vigilant about any changes in fees that could impact returns. Regularly reviewing investment costs ensures that the portfolio remains aligned with cost-effective principles, enhancing overall performance.

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