Balanced Portfolio with Strong Diversification and Moderate Risk for Long-Term Growth Potential

Report created on Aug 11, 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 is composed of three ETFs, with a major allocation to the Vanguard Total Stock Market Index Fund ETF Shares at 65%. This is complemented by a 25% allocation to the Vanguard Total International Stock Index Fund ETF Shares and a 10% allocation to the Vanguard Growth Index Fund ETF Shares. The portfolio is broadly diversified, capturing a wide range of stocks across different regions and sectors. This composition provides a solid foundation for long-term growth, while the diversified nature helps mitigate some risks associated with investing in a single market or sector.

Growth Info

Historically, this portfolio has shown a strong performance with a compound annual growth rate (CAGR) of 12.08%. However, it has also experienced significant downturns, with a maximum drawdown of -34.28%. This suggests that while the portfolio has the potential for high returns, it can also be volatile. The fact that 90% of returns are concentrated in just 29 days highlights the importance of staying invested to capture these gains. The historical performance indicates a robust growth trajectory but requires a tolerance for market fluctuations.

Projection Info

Using a Monte Carlo simulation, which models potential future performance based on historical data, the portfolio shows promising growth prospects. With 1,000 simulations, the annualized return averaged 12.96%, with 977 simulations yielding positive returns. The 50th percentile projection suggests a 350.01% increase in value, while the 5th percentile offers a more conservative 40.33% growth. This analysis underscores the potential for significant appreciation, though outcomes can vary widely. Investors should be prepared for different scenarios and maintain a long-term perspective.

Asset classes Info

  • Stocks
    99%

The portfolio is heavily weighted towards stocks, comprising 99.47% of the allocation, with minimal exposure to cash and other asset classes. This focus on equities is typical for growth-oriented portfolios, aiming to maximize returns over time. However, it also increases exposure to market volatility. While this allocation aligns with a balanced risk profile, investors seeking to reduce risk might consider incorporating more fixed-income assets. This could help smooth out returns and provide a buffer during market downturns, though it may slightly reduce potential gains.

Sectors Info

  • Technology
    28%
  • Financials
    14%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    3%
  • Real Estate
    3%
  • Utilities
    3%

Sector allocation is well-distributed, with a significant emphasis on technology at 28.23%, followed by financial services and consumer cyclicals. This diversified sector exposure helps balance risks and capture growth opportunities across various industries. However, the heavy weighting in technology may lead to increased volatility, given the sector's historical fluctuations. To maintain a balanced risk profile, consider periodically reviewing sector allocations and adjusting as needed to ensure alignment with broader market trends and personal investment goals.

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%

Geographically, the portfolio is predominantly invested in North America, accounting for 76.63% of the allocation. This is supplemented by exposure to developed Europe, emerging Asia, and other regions. While this provides a solid base in a stable and mature market, it may limit potential growth opportunities in emerging markets. To enhance diversification, consider gradually increasing exposure to underrepresented regions. This can help capture growth in dynamic economies and reduce reliance on the North American market, potentially improving overall portfolio resilience.

Redundant positions Info

  • Vanguard Growth Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation between the Vanguard Growth Index Fund ETF Shares and the Vanguard Total Stock Market Index Fund ETF Shares. This suggests overlapping exposure, which could limit diversification benefits. High correlation means these assets tend to move in the same direction, potentially increasing risk during downturns. To improve diversification, consider reducing the overlap by reallocating to assets with lower correlation. This can enhance risk-adjusted returns and provide a more balanced investment approach.

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 optimization chart suggests focusing on reducing highly correlated assets before considering further optimization. By addressing overlap, the portfolio can achieve better diversification, enhancing risk-adjusted returns. Moving along the efficient frontier allows investors to adjust their risk profile. A riskier portfolio might include more equities, while a conservative one would increase bonds. However, the current broad diversification provides a solid base. Prioritize fine-tuning existing allocations to ensure alignment with personal risk tolerance and investment goals.

Dividends Info

  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.64%

The portfolio's dividend yield stands at 1.64%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 3.0%. Dividends provide a steady income stream, which can be reinvested to compound growth over time. While the yield is modest, it aligns with the growth-oriented focus of the portfolio. Investors seeking higher income may need to adjust allocations towards higher-yielding assets. However, this should be balanced against the potential impact on growth and overall risk exposure.

Ongoing product costs Info

  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from low costs, with a total expense ratio (TER) of 0.04%. Low fees are advantageous as they enhance net returns over time, especially in a long-term investment strategy. The Vanguard ETFs are known for their cost efficiency, which supports the portfolio's goal of maximizing returns. Keeping costs low is a key principle in investing, and this portfolio is well-positioned in that regard. It's important to regularly review expense ratios and ensure they remain competitive as part of an ongoing investment strategy.

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