A cautious portfolio with a balanced asset mix and high diversification
Report created on Apr 8, 2025Risk profile
3/7
Diversification profile
5/5
Positions
-
BN Vanguard Total Bond Market Index Fund ETF Shares
BND - US9219378356 40.00% -
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 30.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 30.00%
This portfolio consists of three primary ETFs: Vanguard Total Bond Market, Total Stock Market, and Total International Stock Market. The allocation is 40% bonds and 60% stocks, reflecting a cautious approach. Compared to a typical balanced benchmark, which often has a 60/40 stock-to-bond ratio, this portfolio leans more conservatively. This composition can provide stability, particularly in volatile markets, while still offering growth potential through equity exposure. For those seeking less risk, this allocation is well-suited to minimize volatility while maintaining some growth potential.
Growth
Historically, this portfolio has shown a Compound Annual Growth Rate (CAGR) of 5.67% with a maximum drawdown of -23.58%. This indicates moderate growth with a significant, but not extreme, potential loss during downturns. Compared to a traditional balanced benchmark, the performance is steady, aligning with the cautious risk profile. While past performance cannot predict future results, it does provide a baseline for expectations. Investors satisfied with this historical growth rate might choose to maintain the current allocation, while those seeking higher returns might consider increasing equity exposure.
Projection
Using Monte Carlo simulation, which uses historical data to estimate future outcomes, the portfolio's potential future returns range widely. The median projection suggests a 112.5% return, while the worst-case scenario is a -17.6% loss. With 905 out of 1,000 simulations showing positive returns, the outlook is generally optimistic. While simulations are not guarantees, they provide a probabilistic insight into potential future performance. Investors should consider these projections when setting long-term financial goals, understanding that actual results may vary due to market conditions.
Asset classes
- Stocks 59%
- Bonds 40%
- Cash 1%
With 59% in stocks and 40% in bonds, this portfolio is well-diversified across asset classes. The significant bond allocation provides a cushion against stock market volatility, aligning with the cautious risk profile. Compared to benchmarks, which often have a higher equity weighting, this portfolio prioritizes stability. Such a mix is ideal for investors who value capital preservation over aggressive growth. If an investor's risk tolerance increases, they might consider shifting more towards equities to potentially enhance returns.
Sectors
- Technology 13%
- Financials 11%
- Industrials 7%
- Consumer Discretionary 7%
- Health Care 6%
- Telecommunications 4%
- Consumer Staples 4%
- Basic Materials 3%
- Energy 2%
- Real Estate 2%
- Utilities 2%
The sector allocation is fairly balanced, with technology at 13% and financial services at 11% leading the way. This distribution aligns well with typical market benchmarks, providing broad exposure across industries. Sector diversification can mitigate risks associated with downturns in specific industries. Investors should monitor sector trends and consider adjustments if certain sectors become over- or underrepresented relative to market conditions. Staying informed on sector performance can help maintain a balanced portfolio that aligns with economic shifts.
Regions
- North America 32%
- Europe Developed 12%
- Asia Emerging 5%
- Japan 5%
- Asia Developed 3%
- Australasia 1%
- Africa/Middle East 1%
- Latin America 1%
Geographic allocation shows a strong bias towards North America at 32%, followed by Europe and Asia. This distribution provides global exposure, reducing reliance on any single region. Compared to global benchmarks, the regional allocation is well-aligned, offering diversification benefits. Investors should consider maintaining this geographic balance to hedge against regional economic downturns. However, those seeking more growth might explore increased exposure to emerging markets, which can offer higher potential returns but come with increased volatility.
Market capitalization
- Mega-cap 26%
- Large-cap 18%
- Mid-cap 11%
- Small-cap 3%
- Micro-cap 1%
The portfolio's market capitalization is diversified, with 26% in mega-cap stocks and a mix of big, medium, small, and micro caps. This distribution provides a balance between stability and growth potential. Mega-cap stocks often offer stability, while smaller caps can provide higher growth opportunities. Compared to benchmarks, this allocation is well-balanced, ensuring exposure across company sizes. Investors seeking more aggressive growth might consider increasing small-cap exposure, though this comes with higher volatility risks.
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.
This portfolio could be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio. By adjusting the current asset allocation, investors might achieve a more efficient balance between risk and return. However, it's important to note that optimization is based solely on the current assets and does not guarantee diversification or other goals. Investors should consider their unique risk tolerance and financial objectives when exploring optimization strategies. Regularly reviewing the portfolio's efficiency can help maintain alignment with investment goals.
Dividends
- Vanguard Total Bond Market Index Fund ETF Shares 3.40%
- Vanguard Total Stock Market Index Fund ETF Shares 1.50%
- Vanguard Total International Stock Index Fund ETF Shares 3.50%
- Weighted yield (per year) 2.86%
With a total dividend yield of 2.86%, this portfolio provides a steady income stream. The bond and international stock components contribute significantly to this yield. Dividends can enhance returns, especially in low-growth environments, and provide a buffer against market volatility. Investors seeking income might find this yield attractive, though those focused on growth might prioritize capital appreciation over dividends. Monitoring dividend policies and yields can help maintain alignment with income objectives.
Ongoing product costs
- Vanguard Total Bond Market Index Fund ETF Shares 0.03%
- Vanguard Total Stock Market Index Fund ETF Shares 0.03%
- Vanguard Total International Stock Index Fund ETF Shares 0.05%
- Weighted costs total (per year) 0.04%
The portfolio's total expense ratio (TER) is impressively low at 0.04%, thanks to the use of Vanguard ETFs. Low costs are crucial for long-term performance, as they allow more of the returns to stay invested. Compared to industry averages, this TER is highly competitive, supporting better net returns over time. Investors should continue to prioritize low-cost investments to maximize their portfolio's efficiency. Regularly reviewing expense ratios can ensure costs remain minimized and aligned with investment goals.
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