A balanced growth-focused portfolio with significant technology exposure and low geographic diversification
Report created on Dec 25, 2024Risk profile
4/7
Diversification profile
1/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 60.00% -
VG Vanguard Information Technology Index Fund ETF Shares
VGT - US92204A7028 20.00% -
BN Vanguard Total Bond Market Index Fund ETF Shares
BND - US9219378356 10.00% -
VU Vanguard Growth Index Fund ETF Shares
VUG - US9229087369 10.00%
The portfolio is composed primarily of equity ETFs, with a significant 60% allocation to the Vanguard S&P 500 ETF. It also includes a 20% investment in the Vanguard Information Technology Index Fund ETF, and smaller allocations in the Vanguard Total Bond Market Index Fund ETF and Vanguard Growth Index Fund ETF. This composition is typical for a growth-oriented strategy, though the bond allocation is lower than what is often seen in balanced portfolios. This structure emphasizes growth with a moderate level of risk due to its equity concentration. Consider increasing bond exposure for more balance.
Growth
Historically, the portfolio has delivered a robust Compound Annual Growth Rate (CAGR) of 14.63%, indicating strong past performance. This growth rate reflects the portfolio's heavy weighting in equities, particularly in technology, which has been a high-performing sector. However, the maximum drawdown of -31.19% highlights potential volatility. While past performance is not a predictor of future results, it provides insight into potential risks and rewards. To mitigate drawdown risks, consider diversifying across more asset classes and sectors.
Projection
The forward projection using Monte Carlo simulations suggests a wide range of potential outcomes. With 1,000 simulations, the median (50th percentile) outcome is a portfolio growth of 454.91%, while the 5th percentile shows a 71.82% increase, indicating possible downside risks. Monte Carlo simulations use historical data to model potential future scenarios, but they come with limitations as they cannot predict future events. To prepare for various outcomes, consider maintaining a diversified strategy and regularly reviewing asset allocations.
Asset classes
- Stocks 90%
- Bonds 10%
The portfolio is heavily skewed towards stocks, accounting for nearly 90% of the allocation, with bonds making up just under 10%. This stock-heavy allocation is typical for growth-focused portfolios but may not provide sufficient diversification to buffer against market downturns. In comparison, balanced benchmarks often suggest a higher bond allocation for risk mitigation. Consider increasing bond exposure or adding alternative asset classes to enhance diversification and reduce volatility.
Sectors
- Technology 45%
- Financials 8%
- Consumer Discretionary 8%
- Health Care 7%
- Telecommunications 7%
- Industrials 5%
- Consumer Staples 4%
- Energy 2%
- Utilities 2%
- Real Estate 2%
- Basic Materials 1%
The portfolio's sector allocation is notably concentrated in technology, which comprises over 44% of the total. This concentration can lead to higher volatility, especially during periods of technological sector downturns or regulatory changes. While the technology sector has driven impressive returns, a more balanced sector allocation could help mitigate sector-specific risks. Consider diversifying into sectors like healthcare, consumer goods, or industrials to reduce reliance on a single sector.
Regions
- North America 89%
Geographically, the portfolio is heavily concentrated in North America, with almost 90% exposure. This lack of geographic diversification could expose the portfolio to regional economic risks. In comparison, global benchmarks often include more exposure to developed markets in Europe and Asia. Expanding geographic diversification could mitigate risks associated with economic downturns in North America. Consider increasing allocations to international markets to capture growth opportunities and reduce regional dependency.
Redundant positions
-
High correlationVanguard Information Technology Index Fund ETF SharesVanguard Growth Index Fund ETF SharesVanguard S&P 500 ETF
The portfolio contains highly correlated assets, particularly among the Vanguard Information Technology Index Fund ETF, Vanguard Growth Index Fund ETF, and Vanguard S&P 500 ETF. High correlation means these assets tend to move together, limiting diversification benefits during market downturns. While correlation can enhance returns in rising markets, it can also amplify losses. To improve diversification, consider replacing some of these correlated assets with investments that have a lower correlation to the existing holdings.
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's current structure may not be fully optimized on the Efficient Frontier due to its high concentration in correlated assets. The Efficient Frontier represents the best possible risk-return ratio for a given set of investments. To optimize, consider reallocating within existing assets to achieve a more efficient balance. Focus on reducing overlap among correlated holdings and potentially increasing exposure to less correlated or additional asset classes to enhance overall portfolio efficiency.
Dividends
- Vanguard Total Bond Market Index Fund ETF Shares 3.30%
- Vanguard Information Technology Index Fund ETF Shares 0.50%
- Vanguard S&P 500 ETF 0.90%
- Vanguard Growth Index Fund ETF Shares 0.30%
- Weighted yield (per year) 1.00%
The portfolio's dividend yield is relatively low at 1.0%, reflecting its growth-oriented focus. Dividends can provide a steady income stream and help cushion against volatility. While growth stocks typically have lower yields, balancing growth with some higher-yielding investments could enhance income generation. Consider incorporating more dividend-focused assets to increase income potential without sacrificing growth entirely.
Ongoing product costs
- Vanguard Total Bond Market Index Fund ETF Shares 0.03%
- Vanguard Information Technology Index Fund ETF Shares 0.10%
- Vanguard S&P 500 ETF 0.03%
- Vanguard Growth Index Fund ETF Shares 0.04%
- Weighted costs total (per year) 0.04%
The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.04%. Low costs are crucial for maximizing long-term returns, as they reduce the drag on performance. Vanguard's ETFs are known for their cost efficiency, which aligns well with best practices in portfolio management. Maintaining this cost structure is advantageous, but always review for potential lower-cost alternatives. Regularly assess whether all holdings continue to offer the best value for their fees.
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