Balanced Growth Portfolio with Broad Diversification and Moderate Risk for Long-Term Investors

Report created on Dec 5, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is composed entirely of ETFs, with a strong emphasis on stocks, representing over 99% of the holdings. The largest position is the Vanguard S&P 500 ETF, making up 35% of the portfolio, followed by the Vanguard Total International Stock Index Fund ETF Shares at 25%. This composition indicates a preference for broad market exposure and a growth-oriented strategy. A well-diversified mix of U.S. and international equities suggests an intent to capture global growth opportunities. To enhance diversification, consider adding other asset classes such as bonds or real assets, which could help in reducing volatility.

Growth Info

Historically, the portfolio has delivered a strong annualized return of 13.17%, showcasing its growth potential. However, it also experienced a significant maximum drawdown of -36.61%, indicating vulnerability during market downturns. The concentration of returns in just 14 days suggests a reliance on market timing for performance. This performance history underscores the portfolio's growth focus, but it also highlights the importance of being prepared for volatility. To mitigate risk, consider introducing stabilizing assets which might provide a cushion during market downturns, allowing for more consistent performance.

Projection Info

Using Monte Carlo simulations, the portfolio shows promising future potential with an annualized return of 13.87%. The simulations suggest a wide range of outcomes, with the 5th percentile projecting an 18.79% increase and the 67th percentile a 545.29% increase. Monte Carlo simulations provide a probabilistic view of future performance, helping to understand potential risks and rewards. Given the positive outlook from the majority of simulations, maintaining the current growth strategy could be beneficial. However, continuously reviewing and adjusting the portfolio in response to changing market conditions is crucial for achieving desired outcomes.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, with a negligible allocation to bonds and cash. This indicates a high-risk, high-reward strategy typical of growth-oriented portfolios. The lack of significant bond exposure means there is little protection against market volatility. Diversification across asset classes is important for managing risk, as different asset classes react differently to market conditions. To achieve a more balanced risk profile, consider diversifying into other asset classes such as bonds or real estate, which can provide stability and potential income during periods of stock market volatility.

Sectors Info

  • Financials
    18%
  • Technology
    18%
  • Industrials
    14%
  • Consumer Discretionary
    12%
  • Health Care
    8%
  • Basic Materials
    7%
  • Energy
    6%
  • Consumer Staples
    6%
  • Telecommunications
    6%
  • Real Estate
    2%
  • Utilities
    2%

The portfolio covers a broad range of sectors, with financial services, technology, and industrials being the dominant sectors. This sector allocation demonstrates a balanced approach to capturing growth across various industries. However, the reliance on cyclical sectors suggests vulnerability to economic downturns. Sector diversification is crucial for mitigating sector-specific risks and capitalizing on different economic cycles. To further enhance diversification, consider increasing exposure to defensive sectors, which tend to perform well during economic slowdowns, providing a buffer against cyclical downturns.

Regions Info

  • North America
    50%
  • Europe Developed
    24%
  • Japan
    12%
  • Asia Emerging
    4%
  • Asia Developed
    4%
  • Australasia
    4%
  • Africa/Middle East
    2%
  • Latin America
    1%

Geographically, the portfolio is well-diversified, with significant exposure to North America, Europe, and Japan. This global reach allows the portfolio to benefit from economic growth in various regions. However, the relatively low allocation to emerging markets may limit exposure to potentially higher growth opportunities. Geographic diversification helps in spreading risk and capturing growth from different economic environments. To enhance potential returns, consider increasing exposure to emerging markets, which can offer higher growth prospects but also come with increased volatility and risk.

Redundant positions Info

  • Vanguard Total International Stock Index Fund ETF Shares
    Vanguard FTSE Developed Markets Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard Total International Stock Index Fund ETF Shares and the Vanguard FTSE Developed Markets Index Fund ETF Shares. High correlation indicates that these assets tend to move in the same direction, reducing diversification benefits. Diversification is key to managing risk, and reducing correlation can enhance portfolio stability. To improve diversification, consider replacing or reducing exposure to overlapping assets, thereby introducing more uncorrelated investments that can provide better risk-adjusted returns.

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 the portfolio, focus on reducing overlap by addressing highly correlated assets that don't enhance diversification. Adjusting these elements can lead to a more efficient portfolio. Moving along the efficient frontier can help achieve a desired risk-return balance. For a riskier portfolio, consider increasing equity exposure, while for a more conservative approach, introduce more bonds or other low-risk assets. Optimizing the portfolio involves balancing risk and return, ensuring it aligns with your investment goals and risk tolerance, while maintaining diversification to manage potential market volatility.

Dividends Info

  • Avantis® International Small Cap Value ETF 3.00%
  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 3.00%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 2.20%

The portfolio offers a moderate dividend yield of 2.2%, with contributions from various ETFs. The Avantis® International Small Cap Value ETF and Vanguard FTSE Developed Markets Index Fund ETF Shares provide the highest yields at 3.0%. Dividends can provide a steady income stream, which is particularly beneficial during volatile market conditions. A balanced approach to growth and income can enhance overall portfolio returns. To optimize income potential, consider reviewing dividend-focused strategies or funds, which might offer higher yields and complement the growth aspect of the portfolio.

Ongoing product costs Info

  • Avantis® International Small Cap Value ETF 0.36%
  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 0.05%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.12%

The portfolio has a low total expense ratio of 0.12%, reflecting cost-effective management. The Vanguard ETFs contribute to this efficiency with their minimal fees. Keeping costs low is crucial for maximizing net returns over time. High fees can erode returns, particularly in volatile markets. A focus on low-cost investment options helps in preserving wealth and enhancing long-term growth. Continuously monitoring and managing costs is essential, ensuring that any changes in the portfolio do not lead to unnecessary fee increases that could impact overall performance.

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