A balanced portfolio with strong North American focus and high correlation among equity assets

Report created on Jun 7, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

This portfolio consists mainly of equity ETFs, with a significant portion allocated to the Vanguard Total Stock Market Index Fund ETF Shares, making up 34% of the portfolio. The rest is spread across various Vanguard funds, with a smaller allocation to bonds at 11%. This composition indicates a focus on equities with a modest bond exposure. A high equity weighting suggests potential for growth but also increased volatility. Balancing equities with bonds can help manage risk, particularly in volatile markets. Consider increasing bond exposure if seeking more stability or reducing it if pursuing higher growth.

Growth Info

Historically, the portfolio has achieved a compound annual growth rate (CAGR) of 11.36%, which is impressive. However, it also experienced a maximum drawdown of -33.88%, indicating significant volatility during downturns. This performance highlights the potential for high returns but also underscores the risk of substantial losses. Investors should be prepared for periods of volatility and ensure their risk tolerance aligns with these dynamics. Regularly reviewing performance relative to goals and adjusting allocations can help manage expectations and risk.

Projection Info

Monte Carlo simulations, which use historical data to predict future performance, project a wide range of possible outcomes for this portfolio. With 1,000 simulations, the median expected return is 298.16%, with a 5th percentile outcome of 32.49% and a 67th percentile of 439.79%. While these projections offer insight into potential future performance, they are not guarantees and can be affected by unforeseen market events. It's essential to use these projections as a guideline and maintain flexibility in your investment strategy, adjusting as necessary based on actual market conditions.

Asset classes Info

  • Stocks
    89%
  • Bonds
    11%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, comprising approximately 88.5% of the total allocation, with bonds making up about 10.9%. This strong equity focus can drive growth but also increases exposure to market volatility. Having a more balanced asset class allocation could enhance diversification and reduce risk. Consider diversifying into other asset classes like real estate or commodities to potentially enhance returns and manage risk better, depending on your financial goals and risk tolerance.

Sectors Info

  • Technology
    21%
  • Financials
    13%
  • Industrials
    11%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Telecommunications
    5%
  • Consumer Staples
    5%
  • Energy
    4%
  • Real Estate
    4%
  • Utilities
    3%
  • Basic Materials
    3%

The portfolio spans several sectors, with a notable concentration in technology (21.3%) and financial services (13.2%). Such sectoral concentration can lead to higher volatility if these sectors underperform. Spreading investments across a wider range of sectors can improve diversification and mitigate sector-specific risks. Consider increasing exposure to underrepresented sectors like utilities or consumer defensives to balance the portfolio more effectively and reduce reliance on a few dominant sectors.

Regions Info

  • North America
    85%
  • Europe Developed
    2%
  • Asia Emerging
    1%

Geographic allocation is predominantly focused on North America, accounting for 85.5% of the portfolio. This concentration exposes the portfolio to regional economic risks and limits global diversification. Expanding geographic exposure to emerging markets or other developed regions can enhance diversification and capture growth opportunities outside North America. Consider reallocating a portion of the portfolio to international funds to achieve a more balanced global presence and reduce regional risk.

Redundant positions Info

  • Vanguard Total World Stock Index Fund ETF Shares
    Vanguard Extended Market Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard Small-Cap Index Fund ETF Shares
    Vanguard Russell 1000 Growth Index Fund ETF Shares
    Vanguard Mid-Cap Index Fund ETF Shares
    High correlation
  • Vanguard Value Index Fund ETF Shares
    Vanguard High Dividend Yield Index Fund ETF Shares
    High correlation

Many assets in the portfolio are highly correlated, particularly within equity ETFs. High correlation means these assets tend to move in the same direction, reducing diversification benefits. Diversification aims to spread risk across different assets, so high correlation can undermine this strategy. Consider reducing holdings in overlapping funds and reallocating to less correlated assets to enhance diversification and minimize portfolio risk.

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 can potentially be optimized using the Efficient Frontier, which seeks the best risk-return ratio. However, given the high correlation among equity assets, optimization should focus on reducing overlap and increasing diversification. Consider reallocating assets among existing holdings to achieve a more efficient risk-return balance. The goal is to maximize returns for a given level of risk, not necessarily to diversify further, but to make existing diversification more effective.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.80%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.60%
  • Vanguard Total World Stock Index Fund ETF Shares 1.80%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Value Index Fund ETF Shares 2.30%
  • Vanguard Extended Market Index Fund ETF Shares 1.10%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.80%
  • Weighted yield (per year) 1.72%

The portfolio has an overall dividend yield of 1.72%, with the Vanguard High Dividend Yield Index Fund ETF Shares contributing significantly. Dividends can provide a steady income stream and enhance total returns, especially in low-growth environments. Increasing exposure to higher-yielding assets could boost income, but it's important to balance this with growth prospects. Consider the trade-off between dividend income and potential capital appreciation when adjusting allocations.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Vanguard Extended Market Index Fund ETF Shares 0.06%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is low at 0.04%, reflecting the cost-efficiency of using Vanguard ETFs. Lower costs can significantly enhance long-term returns, as expenses can eat into profits over time. Continually monitoring and minimizing costs is crucial for optimizing performance. While the current costs are favorable, always be on the lookout for lower-cost alternatives or opportunities to consolidate holdings to maintain cost-efficiency.

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