A balanced portfolio with strong US focus and limited sector diversification

Report created on Jan 13, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio consists of four ETFs, each representing 25% of the total. Two are broad market funds, while the others focus on consumer staples and utilities. This composition leans heavily on equities with minimal cash holdings. Compared to a typical balanced portfolio, the lack of bonds or alternative assets limits diversification. A more varied mix could help manage risk and enhance returns. Consider adding non-equity assets to achieve a more balanced risk-return profile.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 11.32%. However, it also experienced a significant maximum drawdown of -32.46%. This suggests that while the portfolio can generate high returns, it is also susceptible to substantial declines. Comparing this to a standard benchmark, the returns are impressive, but the volatility is noteworthy. To mitigate potential downturns, incorporating more stable asset classes could be beneficial.

Projection Info

Using Monte Carlo simulations, which project potential outcomes based on historical data, the portfolio shows a promising median return of 293.74%. However, it's important to remember that these simulations rely on past performance, which doesn't guarantee future results. The high number of simulations with positive returns (986 out of 1,000) suggests a favorable outlook. Yet, diversifying further could improve resilience against unforeseen market shifts.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly concentrated in stocks, accounting for 99.82% of the allocation, with a negligible cash position. This heavy equity focus can lead to high growth potential but also exposes the portfolio to greater market volatility. In comparison to a diversified benchmark, the absence of fixed income or alternative assets is a notable gap. Including bonds or other asset classes could enhance stability and provide a buffer during market downturns.

Sectors Info

  • Consumer Staples
    28%
  • Utilities
    26%
  • Technology
    16%
  • Financials
    7%
  • Health Care
    6%
  • Consumer Discretionary
    5%
  • Telecommunications
    4%
  • Industrials
    4%
  • Energy
    2%
  • Real Estate
    1%
  • Basic Materials
    1%

Sector-wise, the portfolio is concentrated in consumer defensive and utilities, making up over 50% of the allocation. While these sectors can offer stability and dividends, the lack of exposure to other sectors like technology or healthcare could limit growth opportunities. A more balanced sector allocation could capture emerging trends and reduce sector-specific risks. Consider diversifying into sectors with lower representation to better align with broader market trends.

Regions Info

  • North America
    100%

Geographically, the portfolio is heavily weighted towards North America, with 99.73% exposure. This lack of international diversification could expose the portfolio to regional risks and miss out on global growth opportunities. Compared to global benchmarks, this allocation is significantly skewed. Expanding into other regions could enhance diversification and capture potential growth from emerging markets, providing a more balanced global exposure.

Redundant positions Info

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

The portfolio's assets, particularly the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares, are highly correlated. This means they tend to move together, which can limit diversification benefits. In market downturns, this correlation could amplify losses. To manage risk more effectively, consider reducing overlap by introducing less correlated assets, which can provide a smoother ride through market fluctuations.

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 concept, which seeks the best risk-return ratio. Currently, the portfolio's high correlation and lack of asset diversity limit its efficiency. By reallocating assets to reduce correlation and increase diversification, the portfolio could achieve a more optimal balance. This doesn't necessarily mean adding more assets, but rather adjusting the current allocation to improve the risk-return profile.

Dividends Info

  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Consumer Staples Select Sector SPDR® Fund 2.10%
  • Utilities Select Sector SPDR® Fund 3.00%
  • Weighted yield (per year) 1.92%

The portfolio's overall dividend yield stands at 1.92%, bolstered by the higher yields from the Consumer Staples and Utilities ETFs. Dividends can provide a steady income stream and reduce reliance on capital gains for returns. For investors seeking income, this is a positive feature. However, if the focus is on growth, balancing dividend and growth-oriented investments could enhance overall returns. Adjusting the mix to align with income needs and growth goals is advisable.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Consumer Staples Select Sector SPDR® Fund 0.09%
  • Utilities Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.06%

The portfolio's Total Expense Ratio (TER) is impressively low at 0.06%, reflecting the cost-efficiency of the selected ETFs. Low costs are crucial for maximizing long-term returns, as they minimize the drag on performance. This alignment with best practices supports better net returns over time. Maintaining this cost structure while exploring additional diversification options can ensure that expenses remain manageable without sacrificing potential returns.

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