Balanced Portfolio with Strong Diversification and Moderate Risk, but Overlap in Holdings Could Be Improved
Report created on Nov 5, 2024Risk profile
4/7
Diversification profile
4/5
Positions
-
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 40.00% -
VO Vanguard S&P 500 ETF
VOO - US9229083632 35.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 15.00% -
SG iShares® 0-3 Month Treasury Bond ETF
SGOV - US46436E7186 10.00%
The portfolio is composed of four ETF positions, with a significant focus on equities. The Vanguard Total Stock Market Index Fund ETF and Vanguard S&P 500 ETF together make up 75% of the portfolio, providing a broad exposure to the U.S. stock market. Additionally, the Vanguard Total International Stock Index Fund ETF adds international diversification, while the iShares 0-3 Month Treasury Bond ETF provides a small allocation to bonds, ensuring some stability. This mix results in a balanced portfolio, suitable for investors looking for growth with moderate risk.
Growth
Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 15.25%. This indicates strong past performance, likely driven by the significant allocation to U.S. equities. However, the maximum drawdown of -23.69% highlights the potential volatility and risk associated with this equity-heavy allocation. While the high returns are appealing, it's crucial to consider the historical volatility and be prepared for potential downturns. Maintaining a diversified approach and regularly reviewing asset allocation can help mitigate risks and sustain long-term growth.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. This simulation provides a range of possible outcomes based on historical data and statistical modeling. The median outcome suggests a 399.07% portfolio increase, while the worst-case scenario still shows a positive return of 106.24%. These projections imply a strong potential for future growth, but it's essential to remember that they are based on past performance and market conditions. Regularly reassessing the portfolio's risk profile and ensuring it aligns with personal financial goals is advisable.
Asset classes
- Stocks 90%
- Cash 10%
The portfolio is predominantly allocated to stocks, with approximately 89.66% in equities. This high equity allocation suggests a focus on growth, which can lead to higher returns over time. However, it also introduces more volatility compared to a more balanced allocation with bonds or other asset classes. The small allocation to cash and bonds offers some stability, but increasing exposure to fixed-income assets could further reduce risk. Consider adjusting the asset class distribution to better align with risk tolerance and investment objectives, potentially incorporating more fixed-income or alternative investments.
Sectors
- Technology 26%
- Financials 13%
- Health Care 10%
- Consumer Discretionary 9%
- Industrials 8%
- Telecommunications 7%
- Consumer Staples 5%
- Energy 3%
- Basic Materials 3%
- Utilities 2%
- Real Estate 2%
The sector allocation within the portfolio is diverse, with a significant emphasis on technology, financial services, and healthcare. This diverse sector exposure can help mitigate sector-specific risks and improve overall portfolio resilience. However, the heavy focus on technology may increase vulnerability to market fluctuations within that sector. To enhance diversification, consider balancing the sector allocation by reducing overweight positions and increasing exposure to underrepresented sectors. This approach can help maintain a well-rounded portfolio, minimizing the impact of sector-specific downturns on overall performance.
Regions
- North America 76%
- Europe Developed 6%
- Asia Emerging 2%
- Japan 2%
- Asia Developed 2%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is heavily weighted towards North America, accounting for approximately 75.77% of the allocation. While this provides strong exposure to the U.S. market, it may limit the benefits of international diversification. A more balanced geographic distribution could reduce regional risks and take advantage of growth opportunities in other parts of the world. Consider increasing exposure to emerging markets or underrepresented regions to enhance global diversification. This approach can help capture growth in different economic environments and improve the portfolio's resilience against regional downturns.
Redundant positions
-
High correlationVanguard S&P 500 ETFVanguard Total Stock Market Index Fund ETF Shares
The portfolio exhibits high correlation between the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF, both heavily weighted in U.S. equities. This overlap could limit diversification benefits, as these assets tend to move in tandem. By reducing exposure to highly correlated assets, the portfolio could achieve better diversification and potentially improve risk-adjusted returns. Consider reallocating some of the overlapping positions to other asset classes or regions, which can help reduce correlation and enhance overall portfolio efficiency.
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.
Before optimizing this portfolio, it's crucial to address the overlap between the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF. By reducing correlated assets, the portfolio can achieve better diversification and potentially higher risk-adjusted returns. Moving along the efficient frontier, investors can either increase risk for potentially higher returns or adopt a more conservative approach to minimize risk. For now, focusing on diversification and reducing overlap will provide a stronger foundation before considering further optimization strategies.
Dividends
- iShares® 0-3 Month Treasury Bond ETF 5.20%
- Vanguard S&P 500 ETF 1.20%
- Vanguard Total Stock Market Index Fund ETF Shares 1.20%
- Vanguard Total International Stock Index Fund ETF Shares 3.00%
- Weighted yield (per year) 1.87%
The portfolio's overall dividend yield stands at 1.87%, with contributions from all four ETF positions. The iShares 0-3 Month Treasury Bond ETF offers the highest yield at 5.2%, providing a stable income component. While the dividend yield is modest, it adds an additional layer of returns to the portfolio. Investors seeking higher income might consider increasing allocations to higher-yielding assets or funds. However, it's essential to balance the desire for income with the need for growth and capital appreciation, ensuring the portfolio aligns with long-term financial goals.
Ongoing product costs
- iShares® 0-3 Month Treasury Bond ETF 0.07%
- 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) 0.04%
The portfolio's total expense ratio (TER) is low at 0.04%, which is beneficial for long-term growth as lower costs lead to higher net returns. Each ETF in the portfolio has a competitive expense ratio, contributing to the overall cost-effectiveness. Keeping investment costs low is a crucial factor in maximizing returns over time. Investors should continue to monitor the expense ratios and consider cost-effective alternatives if necessary. Maintaining a focus on low-cost investments will help optimize the portfolio's performance and support the achievement of financial objectives.
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