A balanced portfolio with strong US focus and moderate cost structure

Report created on Dec 20, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is predominantly composed of three Vanguard ETFs, making up 70%, 15%, and 15% of the portfolio respectively. The allocation is heavily weighted towards the Vanguard Total Stock Market Index Fund ETF, which reflects a broad exposure to the US stock market. This composition aligns with a common benchmark for a balanced portfolio, which typically includes a mix of domestic and international stocks. However, the portfolio lacks exposure to bonds or other asset classes that might provide additional diversification and stability during market fluctuations. To enhance diversification, consider incorporating other asset classes like bonds or real estate investment trusts (REITs).

Growth Info

Historically, the portfolio has shown a Compound Annual Growth Rate (CAGR) of 12.8%, which is impressive and suggests strong past performance. This growth rate exceeds typical benchmark averages, indicating robust growth potential. However, it’s important to remember that past performance does not guarantee future results. The portfolio also experienced a maximum drawdown of -34.25%, highlighting vulnerability during market downturns. This suggests a need for strategies to mitigate risk during volatile periods, such as diversifying into less correlated assets or increasing cash reserves.

Projection Info

Forward projections using Monte Carlo simulations show a wide range of potential outcomes. With 1,000 simulations, the portfolio's 5th percentile return is 47.77%, while the median (50th percentile) is 362.0%, and the 67th percentile is 516.09%. These projections are based on historical data, which means they carry inherent limitations and uncertainties. While the simulations suggest a high probability of positive returns, with 985 simulations showing gains, it’s crucial to consider external factors that could impact future performance. Regularly reviewing and adjusting the portfolio in response to market changes can help optimize outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely invested in stocks, with a negligible allocation to cash and other asset classes. This concentration in equities offers significant growth potential but also increases exposure to market volatility. Compared to a diversified benchmark, which might include bonds and alternative investments, this portfolio could benefit from broader asset class diversification. Introducing bonds or other income-generating assets can help balance risk and provide a more stable income stream, especially during periods of stock market downturns.

Sectors Info

  • Technology
    31%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    9%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Real Estate
    3%
  • Utilities
    2%

The portfolio is heavily weighted towards the technology sector, comprising over 30% of the total allocation. This concentration reflects a common trend among growth-oriented portfolios but also increases susceptibility to sector-specific risks, such as regulatory changes or market disruptions. Other sectors, like financial services and consumer cyclicals, are more balanced, aligning well with typical benchmarks. To reduce sector-specific risk, consider rebalancing to achieve a more even distribution across sectors, which can enhance stability and reduce exposure to sector downturns.

Regions Info

  • North America
    86%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

With 85.86% of the portfolio allocated to North America, there is a significant geographic concentration. While this aligns with a focus on US markets, it limits exposure to international growth opportunities. The remaining 14% is distributed across various regions, including Europe and Asia, but these allocations are relatively small. Compared to a globally diversified benchmark, this portfolio could benefit from increased international exposure. Expanding investments in emerging markets or other developed regions could provide additional growth potential and diversification benefits.

Redundant positions Info

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

The portfolio's assets are highly correlated, particularly between the Vanguard Total Stock Market Index Fund ETF and the Vanguard Growth Index Fund ETF. Correlation measures how assets move in relation to each other; highly correlated assets tend to move in the same direction, which can limit diversification benefits. During market downturns, this can lead to increased risk as all correlated assets may decline simultaneously. To improve diversification, consider incorporating assets with lower correlation, such as bonds or alternative investments, which can provide stability and reduce overall portfolio risk.

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 can be optimized using the Efficient Frontier, a concept that helps identify the best possible risk-return ratio given the current assets. However, prior to optimization, addressing the high correlation between certain assets is crucial, as it may limit diversification benefits. By reallocating funds towards less correlated assets, the portfolio can achieve a more balanced risk-return profile. Optimization focuses on adjusting allocations within the existing assets to maximize returns for a given level of risk, rather than changing the overall investment strategy or 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 1.60%
  • Weighted yield (per year) 1.22%

The portfolio's dividend yield stands at 1.22%, which is relatively modest. Dividends can provide a steady income stream, particularly valuable for investors seeking regular cash flow. While the Vanguard Total International Stock Index Fund ETF offers the highest yield at 1.6%, the overall yield is lower than typical income-focused portfolios. For investors prioritizing income, it might be beneficial to explore higher-yielding assets or funds. However, for those focused on growth, the current yield is acceptable, as reinvesting dividends can contribute to long-term capital appreciation.

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's Total Expense Ratio (TER) is impressively low at 0.04%, thanks to the cost-effective nature of Vanguard ETFs. Lower costs mean more of your investment returns stay in your pocket, enhancing long-term performance. This aligns well with best practices for minimizing investment expenses. While the current costs are already competitive, it's wise to periodically review and compare fees with other available options. This ensures that the portfolio remains cost-efficient, especially if new, lower-cost alternatives become available in the market.

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