A balanced portfolio with strong focus on US equities and high diversification globally

Report created on Jul 10, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

The portfolio is heavily weighted towards equities, with 85.72% in stocks and 13.65% in bonds. The Vanguard S&P 500 ETF dominates with a 51.9% allocation, indicating a significant focus on large-cap US equities. The inclusion of global equities through the Vanguard Total World Stock Index and emerging markets ETFs adds diversification. Bonds provide a stabilizing element, albeit with a smaller allocation. Understanding this blend is crucial as it impacts potential returns and risks. A balanced portfolio such as this typically aims to achieve growth while managing volatility through diversification across asset classes.

Growth Info

Historically, the portfolio has shown a compound annual growth rate (CAGR) of 10.61%, which is impressive. However, it also experienced a maximum drawdown of -30.51%, indicating substantial volatility. This means that while the portfolio has performed well over the long term, it has also faced significant short-term declines. Investors should recognize that past performance doesn't guarantee future results, especially since market conditions can change. To mitigate potential drawdowns, consider maintaining a diversified asset mix and possibly increasing bond exposure to cushion against market volatility.

Projection Info

Using Monte Carlo simulations, the portfolio's future performance is projected with a median outcome of 155.75% growth. This method uses historical data to predict a range of possible outcomes. While it offers a glimpse into potential future performance, it's important to note that these are estimates and not certain predictions. The 5th percentile shows a potential loss, highlighting the inherent uncertainty. These projections suggest that the portfolio could continue to grow, but investors should remain prepared for various market conditions and adjust allocations as needed to align with their risk tolerance.

Asset classes Info

  • Stocks
    86%
  • Bonds
    14%
  • Cash
    1%

The portfolio is predominantly composed of stocks, with a small allocation to bonds. This allocation can offer growth opportunities but may also expose the portfolio to higher volatility. Bonds can help stabilize returns, especially during market downturns. A more balanced allocation between stocks and bonds might reduce risk and provide more consistent returns. Consider evaluating your risk tolerance and investment goals to decide if increasing bond exposure aligns with your financial objectives. Balancing asset classes can help achieve a more stable risk-return profile.

Sectors Info

  • Technology
    24%
  • Financials
    13%
  • Consumer Discretionary
    9%
  • Health Care
    9%
  • Industrials
    8%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio is diversified across several sectors, with the largest allocations in Technology and Financial Services. This sectoral balance can help mitigate risks associated with downturns in specific industries. However, the heavy concentration in Technology could expose the portfolio to sector-specific risks. Diversifying further into other sectors such as Consumer Defensive or Utilities might provide additional stability. It's essential to regularly review sector exposure to ensure alignment with market trends and personal risk tolerance, potentially rebalancing to maintain a diversified approach.

Regions Info

  • North America
    66%
  • Europe Developed
    7%
  • Asia Emerging
    5%
  • Asia Developed
    3%
  • Japan
    3%
  • Africa/Middle East
    1%
  • Australasia
    1%
  • Latin America
    1%

Geographically, the portfolio has a strong focus on North America, representing 65.94% of the allocation. While this provides access to a stable and mature market, it also means the portfolio could be vulnerable to regional economic downturns. The inclusion of emerging and developed markets globally offers diversification benefits and exposure to growth opportunities in other regions. Consider increasing allocations to underrepresented regions, like Asia or Latin America, to enhance diversification and capture potential growth in those areas. This can help spread risk and increase potential returns.

Redundant positions Info

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

The portfolio includes assets that are highly correlated, such as the Vanguard S&P 500 ETF and the Vanguard Total World Stock Index Fund ETF Shares. High correlation means these assets tend to move in tandem, which can reduce the diversification benefits. Diversification aims to minimize risk by including assets that don't closely follow each other's price movements. To enhance diversification, consider reducing exposure to highly correlated assets and incorporating investments that have historically shown lower correlation. This strategy can help manage risk and improve the portfolio's overall resilience.

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 could benefit from optimization using the Efficient Frontier, which identifies the best possible risk-return trade-off. Current asset allocations might not be maximizing efficiency, especially with the presence of highly correlated assets. By adjusting allocations, you can potentially achieve a more favorable risk-return ratio. This doesn't necessarily mean adding new assets but rather reallocating existing ones to optimize performance. Regularly reviewing and adjusting your portfolio in line with the Efficient Frontier can help ensure you're getting the most out of your investments.

Dividends Info

  • iShares Core U.S. Aggregate Bond ETF 3.40%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 1.80%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total World Stock Index Fund ETF Shares 1.20%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 0.70%
  • Weighted yield (per year) 1.51%

The portfolio's total dividend yield is 1.51%, with the iShares Core U.S. Aggregate Bond ETF contributing the highest yield of 3.4%. Dividends can provide a steady income stream and enhance total returns, especially in volatile markets. While the yield is modest, reinvesting dividends can significantly contribute to long-term growth through compounding. Consider focusing on dividend growth strategies or increasing exposure to high-dividend sectors to boost income potential. However, remember that higher yields can sometimes accompany higher risks, so balance is key.

Ongoing product costs Info

  • iShares Core U.S. Aggregate Bond ETF 0.03%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 0.05%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The total expense ratio (TER) for the portfolio is 0.04%, which is relatively low. Low costs are beneficial as they preserve more of your investment returns over time. Expense ratios can erode gains, so maintaining a cost-efficient portfolio is crucial for long-term growth. Regularly review and compare fund fees to ensure competitiveness and consider reallocating to lower-cost alternatives if available. Keeping costs in check is an easy but effective way to enhance your portfolio's performance, especially when compounded over years.

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