A balanced portfolio with a strong focus on US equities and dividend income

Report created on Dec 18, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

This portfolio is heavily weighted towards US equities, with the Vanguard S&P 500 ETF making up over 64% of the holdings. Other significant portions include dividend-focused ETFs and a small allocation to international stocks and bonds. This composition suggests a focus on growth through equity appreciation and dividend income. A well-diversified portfolio typically includes a mix of asset classes to spread risk. To better balance risk and return, consider increasing the bond allocation or exploring other asset classes like real estate or commodities.

Growth Info

Historically, this portfolio has demonstrated strong performance with a compound annual growth rate (CAGR) of 12.87%. However, it has also experienced significant volatility, as evidenced by a maximum drawdown of -33.47%. This means that while the portfolio has potential for high returns, it is also susceptible to substantial losses during market downturns. It's crucial for investors to be prepared for these fluctuations and to consider their own risk tolerance when evaluating past performance. Diversifying into less volatile assets could help mitigate future drawdowns.

Projection Info

The portfolio's forward projection, based on Monte Carlo simulations, suggests a wide range of potential outcomes. With a median expected return of 229.99% over the simulation period, the portfolio shows promise. However, the 5th percentile outcome of 25.57% indicates that there are scenarios where returns could be much lower. Monte Carlo simulations use historical data to model future returns, but they cannot account for unforeseen events or market shifts. Investors should use these projections as a guide rather than a guarantee and continue to monitor market conditions.

Asset classes Info

  • Stocks
    99%
  • Bonds
    1%

The portfolio is predominantly composed of stocks, accounting for over 98% of the allocation, with minimal exposure to bonds and cash. This skew towards equities suggests a higher risk profile, as stocks are generally more volatile than bonds. A more balanced allocation across different asset classes can help reduce risk and improve stability. Consider increasing the bond allocation or introducing alternative investments to enhance diversification and protect against market downturns.

Sectors Info

  • Technology
    27%
  • Financials
    16%
  • Health Care
    12%
  • Consumer Discretionary
    9%
  • Industrials
    9%
  • Consumer Staples
    8%
  • Telecommunications
    7%
  • Energy
    5%
  • Utilities
    3%
  • Basic Materials
    2%
  • Real Estate
    2%

Sector allocation in the portfolio reveals a strong concentration in technology, financial services, and healthcare. While these sectors have been strong performers historically, overexposure to any single sector can increase risk due to sector-specific downturns. Diversifying across a broader range of sectors can help mitigate this risk and provide a more stable return profile. Investors should evaluate their sector exposure regularly and adjust as needed to maintain a balanced approach.

Regions Info

  • North America
    94%
  • Europe Developed
    2%
  • Asia Emerging
    1%
  • Japan
    1%
  • Asia Developed
    1%

The portfolio's geographic exposure is heavily concentrated in North America, with over 94% of assets allocated there. This lack of international diversification could expose the portfolio to regional risks and limit growth opportunities in other markets. Expanding geographic exposure to include more assets from Europe, Asia, and emerging markets can help spread risk and tap into global growth potential. Consider gradually increasing international exposure to enhance diversification.

Redundant positions Info

  • Vanguard Dividend Appreciation Index Fund ETF Shares
    Vanguard S&P 500 ETF
    Schwab U.S. Dividend Equity ETF
    Vanguard High Dividend Yield Index Fund ETF Shares
    High correlation

The portfolio includes several highly correlated assets, particularly among the dividend-focused ETFs. High correlation means these assets tend to move together, offering limited diversification benefits. Diversification is key to managing risk, so reducing overlap by selecting assets with lower correlation can improve the portfolio's risk-return profile. Consider replacing or reducing holdings in highly correlated ETFs with those that have unique performance drivers.

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 be optimized using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. By adjusting the allocation among current assets, investors can potentially enhance returns without increasing risk. However, optimization based solely on these assets may not address diversification needs. Investors should first focus on reducing highly correlated holdings and consider introducing new, less correlated assets to achieve a truly efficient and diversified portfolio.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 1.60%
  • Vanguard High Dividend Yield Index Fund ETF Shares 1.90%
  • Weighted yield (per year) 1.54%

With a total yield of 1.54%, the portfolio provides a modest income stream from dividends. This yield is primarily driven by the dividend-focused ETFs, which offer higher payouts compared to the broader market. Dividend income can be an important component of total returns, especially in volatile markets. Investors seeking higher income may explore increasing their allocation to higher-yielding assets or funds, while those focused on growth might prioritize capital appreciation.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is relatively low at 0.04%, reflecting the cost-effective nature of the selected ETFs. Lower costs can significantly enhance long-term returns by reducing the drag on performance. However, it's important to regularly review expense ratios and ensure they remain competitive. Investors should also be mindful of potential hidden costs, such as transaction fees or taxes, which can impact overall returns.

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