Balanced Portfolio with a Strong Diversification and Moderate Risk Suitable for Long-Term Growth and Stability

Report created on Jul 19, 2024

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio is composed of five Vanguard ETFs, each providing exposure to different asset classes and regions. With 25% allocated to the Vanguard Total Bond Market Index Fund ETF, it offers a solid foundation in bonds. The Vanguard S&P 500 ETF, Vanguard Extended Market Index Fund ETF, and Vanguard Growth Index Fund ETF each make up 25%, 25%, and 10% of the portfolio, respectively, providing significant exposure to the U.S. stock market. The Vanguard Total International Stock Index Fund ETF accounts for 15%, adding international diversification. This composition is well-balanced, offering a mix of growth and income opportunities.

Growth Info

Historically, the portfolio has shown a compound annual growth rate (CAGR) of 9.46%, which is quite robust. The maximum drawdown of -29.35% indicates that while there is some risk, the potential for recovery and growth is significant. With only 29 days accounting for 90% of returns, the portfolio has experienced concentrated periods of performance. This historical data suggests that the portfolio has been able to weather market volatility while delivering reasonable returns, aligning well with a balanced investment strategy.

Projection Info

Using a Monte Carlo simulation, which runs thousands of scenarios to predict future performance, the portfolio shows promising forward projections. Assuming a hypothetical initial investment, the simulation's median (50th percentile) suggests a potential growth of 227.75%, with a 67th percentile projection reaching 325.35%. The 5th percentile shows a minimal gain of 19.47%, indicating a low probability of negative returns. With an annualized return of 10.08%, the portfolio is positioned for steady growth, although some volatility is expected. This projection aligns with the balanced risk profile of the portfolio.

Asset classes Info

  • Stocks
    74%
  • Bonds
    25%
  • Cash
    1%

The portfolio's asset class allocation is predominantly in stocks, with 74.3% exposure, offering significant growth potential. Bonds make up 24.7%, providing stability and income. A small allocation to cash and other categories adds liquidity and diversification. This mix of asset classes supports a balanced approach, reducing overall portfolio risk while allowing for capital appreciation. To further enhance stability, consider slightly increasing the bond allocation, which may help cushion against market downturns without sacrificing too much growth potential.

Sectors Info

  • Technology
    20%
  • Financials
    11%
  • Industrials
    9%
  • Consumer Discretionary
    9%
  • Health Care
    8%
  • Telecommunications
    5%
  • Consumer Staples
    3%
  • Basic Materials
    3%
  • Real Estate
    3%
  • Energy
    3%
  • Utilities
    2%

Sector-wise, the portfolio is well-diversified, with significant allocations in technology (20%), financial services (11%), and industrials (9%). This broad sector exposure reduces reliance on any single industry, mitigating sector-specific risks. However, there is room to improve diversification by reducing the concentration in technology, which can be volatile. Balancing sector allocations can help stabilize returns over time. Consider reviewing sector performance periodically to ensure alignment with long-term investment goals.

Regions Info

  • North America
    61%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is heavily weighted towards North America, with 60.57% allocation, reflecting a strong home bias. While this provides exposure to a stable and mature market, the portfolio benefits from international diversification through allocations in Europe, Asia, and other regions. To further reduce geographic risk, consider increasing exposure to emerging markets, which may offer higher growth potential. Balancing geographic allocations can enhance resilience against regional economic fluctuations and provide opportunities for global growth.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly within the U.S. equity segment, such as the Vanguard Growth Index Fund ETF, Vanguard S&P 500 ETF, and Vanguard Extended Market Index Fund ETF. This correlation can amplify portfolio volatility during market downturns. While diversification across asset classes mitigates some risks, consider reducing exposure to overlapping assets to decrease correlation. A more diversified approach within the equity segment can help smooth returns and minimize risk during market turbulence.

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 currently has overlapping assets, particularly in U.S. equities, which limits optimization potential. Instead of optimizing, focus on reducing asset correlation to enhance diversification. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. For a riskier profile, increase equity exposure, while for a more conservative approach, boost bond allocation. Adjusting the balance between stocks and bonds can align the portfolio more closely with individual risk preferences without compromising diversification.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Vanguard Extended Market Index Fund ETF Shares 1.10%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.98%

The portfolio's dividend yield stands at 1.98%, providing a modest income stream. The Vanguard Total Bond Market Index Fund ETF contributes a significant 3.6% yield, enhancing the portfolio's income potential. Other ETFs, like the Vanguard S&P 500 ETF and Vanguard Total International Stock Index Fund ETF, also contribute to the yield. While dividends are not the primary focus, they add value by offering regular income. Consider reinvesting dividends to compound returns, which can significantly enhance long-term growth, especially in a balanced portfolio.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Vanguard Extended Market Index Fund ETF Shares 0.06%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.05%

With a total expense ratio (TER) of 0.05%, the portfolio is cost-efficient, thanks to its low-cost Vanguard ETFs. This low expense ratio ensures that more of the portfolio's returns are retained. Keeping costs low is crucial for maximizing net returns over time. Regularly reviewing and comparing expense ratios can help maintain cost efficiency. Although the portfolio is already optimized for cost, consider monitoring any changes in ETF fees to ensure ongoing cost-effectiveness, which is vital for long-term investment success.

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