A balanced portfolio with a strong US focus and moderate diversification benefits

Report created on Jan 5, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio comprises a mix of index funds and ETFs, with a significant allocation to the Schwab Target 2060 Index Fund at nearly 48%. The remainder is spread across other stock market and international index funds, with a small allocation to small-cap and S&P 500 funds. Compared to common benchmarks, this portfolio leans heavily towards equity investments, with minimal exposure to bonds and cash. Such a composition is typical for a balanced portfolio, aiming for growth while maintaining some stability. To enhance diversification, consider increasing exposure to bonds or alternative assets to mitigate potential equity market volatility.

Growth Info

Historically, this portfolio has delivered a robust Compound Annual Growth Rate (CAGR) of 12.05%, with a maximum drawdown of -33.95%. This indicates strong growth potential but also significant risk during downturns. For context, a balanced benchmark portfolio might show a slightly lower CAGR with less drawdown. The concentrated days of returns suggest that market timing can be critical. While past performance is promising, it's essential to remember that it doesn't guarantee future results. Consider maintaining a diversified approach to smooth out potential volatility.

Projection Info

Using Monte Carlo simulation, this portfolio's future performance was projected through 1,000 simulations. The results show a median (50th percentile) growth of 304.12%, with a 5th percentile outcome of 23.89% and a 67th percentile of 478.12%. This method uses historical data to simulate potential outcomes, highlighting both optimistic and cautious scenarios. While the simulation suggests a high probability of positive returns, it's important to remember that these are hypothetical projections and not guarantees. Regularly reviewing and adjusting the portfolio can help manage risks and align with changing market conditions.

Asset classes Info

  • Stocks
    97%
  • Bonds
    2%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, comprising over 97% of the total assets, with minimal allocations to bonds and cash. This high equity exposure can drive significant growth but also increases vulnerability to market volatility. Compared to a typical balanced portfolio benchmark, which might include 60% equities and 40% bonds, this portfolio is more aggressive. To improve stability and reduce risk, consider gradually increasing bond allocations or diversifying into other asset classes such as real estate or commodities.

Sectors Info

  • Technology
    25%
  • Financials
    15%
  • Health Care
    11%
  • Industrials
    10%
  • Consumer Discretionary
    8%
  • Telecommunications
    7%
  • Real Estate
    6%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    4%
  • Utilities
    3%
  • Consumer Discretionary
    2%

Sector-wise, the portfolio is concentrated in technology (24.66%), followed by financial services and healthcare. This allocation aligns with common benchmarks but leans towards sectors known for higher volatility. A tech-heavy focus can lead to significant growth during booms but may suffer during downturns or interest rate hikes. To mitigate sector-specific risks, consider balancing the portfolio by increasing exposure to defensive sectors like utilities or consumer staples, which typically perform better during economic slowdowns.

Regions Info

  • North America
    73%
  • Europe Developed
    13%
  • Japan
    5%
  • Asia Emerging
    4%
  • Asia Developed
    3%
  • Australasia
    2%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly focused on North America, with 72.96% exposure. While this aligns with many US-based benchmarks, it limits diversification benefits from international markets. With only modest allocations to Europe, Asia, and other regions, the portfolio may miss out on growth opportunities abroad. Consider increasing exposure to emerging markets or underrepresented regions to enhance global diversification and potentially capture higher returns from faster-growing economies.

Redundant positions Info

  • Vanguard Total International Stock Index Fund ETF Shares
    SCHWAB INTERNATIONAL INDEX FUND SELECT SHARES
    High correlation
  • Vanguard Total Stock Market Index Fund ETF Shares
    Schwab S&P 500 Index Fund
    SCHWAB TOTAL STOCK MARKET INDEX FUND SELECT SHARES
    High correlation

The portfolio includes several highly correlated assets, such as the Vanguard Total International Stock Index Fund ETF Shares and SCHWAB INTERNATIONAL INDEX FUND SELECT SHARES. High correlation means these assets tend to move together, which can limit diversification benefits. During market downturns, this could lead to increased risk. To enhance diversification, consider replacing some of these overlapping assets with those that have lower correlation, thereby spreading risk more effectively across different market conditions.

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 potentially be optimized using the Efficient Frontier, which focuses on achieving the best possible risk-return ratio with the current assets. However, before pursuing optimization, consider removing highly correlated assets that do not contribute to diversification. The Efficient Frontier can help identify an ideal balance between risk and return, but it is based on historical data and assumptions, so regular review and adjustment are necessary to adapt to changing market conditions.

Dividends Info

  • Schwab S&P 500 Index Fund 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 0.54%

The portfolio's overall dividend yield is relatively low at 0.54%, with the highest individual yield coming from the Vanguard Total International Stock Index Fund ETF Shares at 3.4%. Dividends can provide a steady income stream and help cushion against market volatility. For investors seeking regular income, consider increasing allocations to higher-yielding assets or dividend-focused funds. However, keep in mind that high yields can sometimes indicate higher risk, so balance is key.

Ongoing product costs Info

  • SCHWAB INTERNATIONAL INDEX FUND SELECT SHARES 0.06%
  • Schwab S&P 500 Index Fund 0.02%
  • SCHWAB SMALL-CAP INDEX FUND SELECT SHARES 0.04%
  • SCHWAB TOTAL STOCK MARKET INDEX FUND SELECT SHARES 0.03%
  • SCHWAB TARGET 2060 INDEX FUND INSTITUTIONAL SHARES 0.08%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is impressively low at 0.06%, with individual fund costs ranging from 0.02% to 0.08%. Low costs are advantageous as they enhance net returns over time, compounding the benefits of long-term investing. This cost efficiency aligns well with best practices and supports better performance compared to higher-cost portfolios. Maintaining this low-cost structure is beneficial, but periodically reviewing for even lower-cost alternatives can further optimize returns.

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