A US-focused stock-heavy portfolio with low costs and moderate diversification potential

Report created on Jan 13, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is heavily weighted toward the Vanguard S&P 500 ETF, which makes up 80% of the total allocation. The remaining 20% is split between the Vanguard Total Stock Market Index Fund ETF Shares and the Vanguard Total International Stock Index Fund ETF Shares. This composition is heavily skewed towards US equities, which can provide strong growth potential but may lack international diversification. A common benchmark for balanced portfolios typically includes more exposure to international markets and bonds. To enhance diversification, consider gradually increasing exposure to international equities or adding bonds to the portfolio.

Growth Info

The portfolio has shown a strong historical performance with a Compound Annual Growth Rate (CAGR) of 13.57%, which is impressive. However, it experienced a maximum drawdown of -34.14%, indicating significant volatility during market downturns. While historical performance can provide insights, it's important to remember that past returns do not guarantee future results. To mitigate future drawdowns, consider diversifying across more asset classes or sectors that may provide stability during volatile periods.

Projection Info

Monte Carlo simulations suggest a wide range of potential future outcomes, with the 5th percentile projecting a 39.07% return and the 67th percentile projecting a 459.28% return. These simulations use historical data to estimate future performance, but they cannot predict specific outcomes. The high number of simulations with positive returns (985 out of 1,000) indicates a generally optimistic outlook. However, to improve the accuracy of projections, consider regularly updating the inputs and assumptions used in these simulations.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible amount in cash and other assets. This lack of diversification across asset classes can increase risk, as stocks tend to be more volatile than bonds or other fixed-income securities. Compared to benchmark portfolios, which often include a mix of stocks, bonds, and alternative investments, this portfolio could benefit from diversifying into other asset classes. Adding bonds or real assets can help reduce volatility and provide more stable returns over time.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

The sector allocation is heavily concentrated in technology, which comprises 31.69% of the portfolio. Other significant sectors include financial services, healthcare, and consumer cyclicals. While this allocation aligns with common benchmarks, the high concentration in technology may lead to increased volatility, especially during periods of market correction. To achieve a more balanced sector allocation, consider increasing exposure to underrepresented sectors like utilities or real estate, which can offer more stability.

Regions Info

  • North America
    95%
  • Europe Developed
    2%
  • Asia Emerging
    1%
  • Japan
    1%
  • Asia Developed
    1%

The portfolio is primarily focused on North American assets, with 94.85% allocated to this region. This heavy domestic bias limits exposure to international markets, which can provide diversification benefits and reduce risk. Common benchmarks for diversified portfolios often have a more balanced geographic allocation. To enhance geographic diversification, consider increasing exposure to developed and emerging markets outside North America, which can offer growth opportunities and hedge against regional economic downturns.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares. High correlation means these assets tend to move in the same direction, reducing diversification benefits. In market downturns, this can lead to increased risk, as the entire portfolio may be affected similarly. To improve diversification, consider replacing one of these ETFs with a less correlated asset, potentially from a different asset class or geographic region.

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's current composition could be optimized using the Efficient Frontier, which helps identify the best risk-return ratio for the given assets. However, the presence of highly correlated assets limits the potential for optimization. Before making any changes, focus on reducing overlap by replacing highly correlated ETFs with more diverse options. This can enhance the portfolio's efficiency, providing a better balance between risk and return while maintaining alignment with the investor's goals and risk tolerance.

Dividends Info

  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 1.40%

The portfolio has a modest dividend yield of 1.4%, with the Vanguard Total International Stock Index Fund ETF Shares offering the highest yield at 3.4%. Dividends can provide a steady income stream and help cushion against market volatility. However, the current yield is relatively low compared to income-focused portfolios. If generating income is a priority, consider incorporating higher-yielding assets or dividend-focused funds to enhance the portfolio's income potential without compromising growth.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • 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) 0.03%

The portfolio benefits from impressively low costs, with a Total Expense Ratio (TER) of just 0.03%. Low costs are advantageous as they allow more of the portfolio's returns to be retained by the investor. This aligns well with best practices for cost efficiency and can significantly improve long-term performance. Maintaining this low-cost structure is important, but always be open to evaluating whether even lower-cost options could be available, ensuring that they align with the portfolio's overall strategy and goals.

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