A balanced portfolio with strong US focus and low costs for long-term growth
Report created on Jan 2, 2025Risk profile
4/7
Diversification profile
4/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 80.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 20.00%
The portfolio is heavily weighted towards the Vanguard S&P 500 ETF, making up 80% of the holdings, with the remaining 20% in the Vanguard Total International Stock Index Fund ETF. This composition focuses primarily on large-cap US stocks with a modest international diversification. Compared to typical balanced portfolios, this structure leans more towards equities, suggesting a growth-oriented strategy. While this approach can yield higher returns, it also introduces more volatility. For a truly balanced portfolio, including bonds or other fixed-income assets could reduce risk and enhance stability.
Growth
Historically, the portfolio has performed well with a Compound Annual Growth Rate (CAGR) of 12.62%. This is impressive compared to average market benchmarks. However, the maximum drawdown of -33.9% indicates significant volatility during downturns. This performance highlights the potential for high returns but also underscores the importance of understanding risk tolerance. To mitigate such risks in the future, consider diversifying further, possibly by adding more defensive asset classes like bonds, which can cushion against market swings.
Projection
Forward projections using Monte Carlo simulations show an annualized return of 11.24% with 969 out of 1,000 simulations yielding positive outcomes. This method uses historical data to estimate future performance but is not a guarantee. The projections reveal a wide range of potential outcomes, emphasizing the uncertainty inherent in investing. While the median scenario suggests substantial growth, it's crucial to prepare for less favorable outcomes. Regularly reviewing and adjusting the portfolio can help manage risks and align with evolving financial goals.
Asset classes
- Stocks 100%
The portfolio is predominantly invested in stocks, accounting for over 99.5% of the allocation. This heavy equity exposure can drive growth but also increases vulnerability to market volatility. Compared to benchmarks, the lack of fixed-income assets or alternative investments limits diversification. Introducing bonds or other asset classes could provide more balance, reducing risk and enhancing resilience during market downturns. A more diversified asset allocation can help achieve a smoother return profile over time.
Sectors
- Technology 29%
- Financials 15%
- Health Care 11%
- Consumer Discretionary 10%
- Industrials 9%
- Telecommunications 8%
- Consumer Staples 6%
- Energy 4%
- Basic Materials 3%
- Utilities 3%
- Real Estate 2%
Sector allocation is concentrated, with a significant 29% in technology, followed by financial services and healthcare. This aligns with common benchmarks but may expose the portfolio to sector-specific risks. For instance, a tech-heavy portfolio could face higher volatility during periods of regulatory changes or interest rate hikes. Balancing sector exposure by increasing allocation to underrepresented areas like utilities or consumer defensives could mitigate these risks and improve stability.
Regions
- North America 81%
- Europe Developed 8%
- Asia Emerging 3%
- Japan 3%
- Asia Developed 2%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is heavily concentrated in North America, comprising over 81% of the allocation. This reflects a strong home bias, which can limit exposure to growth opportunities in other regions. While this focus aligns with US market strength, it may miss out on diversification benefits from emerging markets or other developed regions. Increasing international exposure could enhance diversification and capture growth in diverse economic environments, potentially improving 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.
Optimization using the Efficient Frontier suggests that the current asset allocation is close to optimal for the given level of risk. This means that the portfolio is well-positioned to achieve the best possible risk-return ratio with its current holdings. However, it's important to note that this optimization is based solely on existing assets. Regularly reviewing and adjusting allocations can ensure the portfolio remains aligned with changing market conditions and personal investment goals.
Dividends
- Vanguard S&P 500 ETF 1.20%
- Vanguard Total International Stock Index Fund ETF Shares 3.40%
- Weighted yield (per year) 1.64%
The portfolio's overall dividend yield stands at 1.64%, with the international component contributing a higher yield of 3.4%. Dividends can provide a steady income stream and contribute to total returns, especially during periods of market volatility. For investors seeking income, increasing exposure to high-dividend-paying stocks or funds could enhance yield. However, it's important to balance this with growth prospects to maintain the portfolio's overall performance objectives.
Ongoing product costs
- Vanguard S&P 500 ETF 0.03%
- Vanguard Total International Stock Index Fund ETF Shares 0.08%
- Weighted costs total (per year) 0.04%
The portfolio boasts impressively low costs, with a total expense ratio (TER) of just 0.04%. This low-cost structure supports better long-term performance by minimizing the drag on returns. Compared to typical investment fees, this is highly efficient. Keeping costs low is crucial, as fees can significantly erode returns over time. Continuing to prioritize low-cost investment options will help maintain strong performance and align with best practices in portfolio management.
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