A balanced portfolio with a strong US focus and moderate sector diversification

Report created on Sep 28, 2024

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 primarily composed of ETFs, with a significant 40% allocation to the Vanguard S&P 500 ETF. This is complemented by a 20% stake in the Invesco NASDAQ 100 ETF. Smaller allocations are made to Vanguard's Small-Cap, Mid-Cap, Value Index, and Total International Stock Index ETFs. The heavy focus on large-cap US equities suggests a preference for stability and growth from established companies. This structure can provide a solid foundation for investors seeking a balance between risk and reward, while the inclusion of international stocks offers some diversification. However, the portfolio could benefit from further diversification across different asset classes to mitigate risks associated with market volatility.

Growth Info

Historically, the portfolio has shown a robust performance with a Compound Annual Growth Rate (CAGR) of 14.62%. This indicates strong growth over time, although it's important to note that past performance is not a guarantee of future results. The maximum drawdown of -25.56% highlights potential volatility, which investors should be prepared for. Understanding these metrics helps investors gauge the risk and potential return of their investments. While the historical performance is impressive, it's crucial to remain vigilant and adaptable to changing market conditions to sustain such growth.

Projection Info

The forward projection using Monte Carlo simulation suggests a wide range of potential outcomes for the portfolio. With 1,000 simulations, the median (50th percentile) outcome shows a potential return of 483.9%, while the 5th percentile indicates a more conservative 95.39% return. This simulation relies on historical data, which may not fully capture future market dynamics. However, it provides a useful framework for understanding potential risks and rewards. Investors should consider these projections when planning their investment strategy, keeping in mind that market conditions can change unexpectedly.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.6% of assets in equities and a negligible amount in cash and other asset classes. This stock-centric approach can drive higher returns, but it also increases exposure to market fluctuations. Diversifying into other asset classes, such as bonds or real estate, could help reduce risk and provide more stability. By considering a broader range of asset classes, investors can achieve a more balanced risk-return profile, better aligning their portfolio with their risk tolerance and investment goals.

Sectors Info

  • Technology
    29%
  • Financials
    12%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    3%
  • Real Estate
    3%
  • Basic Materials
    3%

Sector allocation within the portfolio is concentrated, with nearly 30% in Technology and significant weights in Financial Services and Consumer Cyclicals. While this concentration can capitalize on growth in these sectors, it also exposes the portfolio to sector-specific risks. A more balanced sector allocation could enhance diversification, reducing the impact of downturns in any single sector. Investors might consider rebalancing to include underrepresented sectors, such as Utilities or Real Estate, to achieve a more even distribution and mitigate potential risks.

Regions Info

  • North America
    90%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is predominantly focused on North America, accounting for nearly 90% of the allocation. While this reflects a strong home bias, it limits exposure to growth opportunities in other regions. Expanding geographic diversification could help capture potential gains from emerging markets and developed regions outside North America. By including more international assets, investors can reduce reliance on the US market, potentially enhancing portfolio resilience against domestic economic fluctuations.

Redundant positions Info

  • Vanguard Small-Cap Index Fund ETF Shares
    Vanguard Mid-Cap Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard Small-Cap and Mid-Cap Index ETFs. High correlation means that these assets tend to move in tandem, offering limited diversification benefits. To improve portfolio efficiency, investors should consider replacing one of these correlated assets with an uncorrelated alternative. This adjustment can enhance risk management, ensuring that the portfolio is better equipped to withstand market volatility and achieve a more favorable risk-return balance.

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 be optimized using the Efficient Frontier, which involves adjusting asset allocations to achieve the best possible risk-return ratio. This optimization focuses solely on reallocating existing assets, rather than introducing new ones. By doing so, investors can potentially enhance returns without increasing risk. It's important to note that efficiency here refers to the optimal balance between risk and return, not diversification or other investment goals. Regularly revisiting and rebalancing the portfolio can help maintain this optimal state.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.40%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Value Index Fund ETF Shares 2.30%
  • Vanguard Total International Stock Index Fund ETF Shares 1.60%
  • Weighted yield (per year) 1.23%

The portfolio's overall dividend yield is 1.23%, with the highest yield from the Vanguard Value Index ETF at 2.3%. Dividends can provide a steady income stream, adding to the portfolio's total return. However, the relatively low yield suggests that the portfolio is more growth-oriented. Investors seeking higher income might consider reallocating to higher-yielding assets. Balancing growth and income can create a more comprehensive strategy that caters to different financial goals, such as funding retirement or reinvesting dividends for compound growth.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is 0.06%, indicating low costs associated with the ETFs. Keeping costs low is crucial for maximizing long-term returns, as high fees can erode investment gains over time. Investors should continue to monitor and manage expenses, potentially exploring even more cost-effective options if available. By maintaining a focus on cost efficiency, investors can enhance their portfolio's performance without sacrificing quality or diversification.

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