A balanced portfolio with a strong US focus and moderate diversification

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

This portfolio consists mainly of US equities, with a significant 70% allocation to the Vanguard S&P 500 ETF. The remaining assets include a mix of extended market, international stocks, and long-term US Treasury bonds. Compared to a typical balanced portfolio, which often includes a more even split between stocks and bonds, this one leans heavily towards equities. This composition suggests a focus on growth, with some stability from the bond allocation. To enhance diversification, consider adding more varied asset classes like real estate or commodities, which can provide different risk-return profiles and reduce reliance on US equities.

Growth Info

Historically, the portfolio has demonstrated a robust Compound Annual Growth Rate (CAGR) of 11.45%, indicating strong past performance. However, it also experienced a maximum drawdown of -30.77%, which highlights its vulnerability to market downturns. This performance is comparable to the broader market, reflecting the significant S&P 500 exposure. While past performance provides insights, it's crucial to remember that it doesn't guarantee future results. To mitigate potential drawdowns, consider diversifying further into less volatile assets or sectors that traditionally perform well during market stress.

Projection Info

Using Monte Carlo simulations, which project future outcomes based on historical data, the portfolio shows varied potential returns. With a median (50th percentile) projection of 118.92% and a positive outcome in 854 of 1,000 simulations, the portfolio presents a promising outlook. However, the 5th percentile projects a loss of -33.2%, indicating possible downside risk. It's important to note that while simulations provide a range of possibilities, they rely on past data and assumptions that may not hold true in future markets. Regularly reviewing and adjusting the portfolio can help manage these risks.

Asset classes Info

  • Stocks
    90%
  • Bonds
    10%
  • Cash
    1%

The portfolio is heavily weighted towards equities, with nearly 90% in stocks and just under 10% in bonds. This allocation suggests a growth-oriented strategy but may lack the balance typically seen in more diversified portfolios. The bond allocation provides some stability, but adding alternative asset classes like real estate or commodities could enhance diversification. This would help mitigate risks associated with equity market volatility and provide a more stable return profile over time, aligning with the portfolio's balanced risk classification.

Sectors Info

  • Technology
    26%
  • Financials
    13%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    3%
  • Basic Materials
    3%
  • Utilities
    2%

The portfolio's sector allocation is concentrated in technology (26.41%), followed by financial services and healthcare. This composition aligns with common benchmarks but may lead to higher volatility, especially during periods of tech sector downturns. While the diversified sector exposure is beneficial, consider monitoring sector trends and adjusting allocations as needed. For instance, increasing exposure to traditionally stable sectors like utilities or consumer defensive could help balance the portfolio's risk and improve resilience against economic fluctuations.

Regions Info

  • North America
    80%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is significantly concentrated in North America, with over 80% of its assets in this region. This heavy US focus may limit diversification benefits and expose the portfolio to regional risks. While the US market has historically performed well, consider increasing exposure to other regions like Europe or Asia to capture growth opportunities and mitigate risks associated with regional economic downturns. Diversifying geographically can also help balance currency risks and provide access to a broader range of growth drivers.

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, which involves adjusting the asset allocation to achieve the best possible risk-return trade-off. This process focuses on maximizing returns for a given level of risk or minimizing risk for a given return. While the current portfolio is well-structured, exploring slight adjustments in the allocation, such as increasing bond exposure or diversifying internationally, could enhance efficiency. Remember, optimization is based on current assets and may not account for future market changes.

Dividends Info

  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Extended Market Index Fund ETF Shares 1.10%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund 3.50%
  • Weighted yield (per year) 1.71%

With a total dividend yield of 1.71%, the portfolio offers modest income potential, primarily driven by international equities and long-term US Treasury bonds. For investors seeking income, this yield may be lower than desired. Consider exploring higher-yielding assets or dividend-focused funds to enhance income generation. However, it's important to balance the pursuit of higher yields with the potential risks, as higher-yielding assets may carry more volatility or credit risk.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Extended Market Index Fund ETF Shares 0.06%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund 0.15%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is impressively low at 0.05%, which is beneficial for long-term performance. Low costs mean more of your investment returns are retained, compounding over time. This cost efficiency aligns well with best practices in portfolio management. Maintaining low costs should remain a priority, but also ensure that the portfolio's structure and asset selection align with your investment goals and risk tolerance.

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