A balanced Canadian portfolio with high equity exposure and moderate risk tolerance

Report created on Jan 12, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is composed primarily of equity ETFs, with a notable 48.91% allocation in Canadian equities and 30.42% in US equities. The remaining holdings are in bonds and cash, which together make up around 4.49% of the portfolio. Compared to a typical balanced benchmark, this portfolio leans heavily toward equities, suggesting a focus on growth over income or capital preservation. To improve risk management, consider increasing bond or cash allocations, which can provide stability during market downturns and reduce overall portfolio volatility.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 14.89%, outperforming many balanced benchmarks. However, it also experienced a maximum drawdown of -35.76%, indicating significant volatility during market declines. This performance suggests that while the portfolio has been successful in capturing market upswings, it may expose investors to substantial losses during downturns. To mitigate this, consider diversification strategies that reduce exposure to highly volatile assets, potentially smoothing returns over time.

Projection Info

Forward projections using Monte Carlo simulations, which use historical data to predict future outcomes, show promising potential. The median expected return is 526.38%, with 984 out of 1,000 simulations yielding positive returns. However, it's important to note that past performance does not guarantee future results, and simulations are based on historical data that may not reflect future market conditions. Regularly reassess the portfolio's alignment with your financial goals and risk tolerance to ensure it remains suitable over time.

Asset classes Info

  • Stocks
    49%
  • US Equity
    30%
  • Bonds
    4%

The portfolio's asset class distribution is heavily skewed towards equities, which can drive growth but also increase risk. With only 4.03% allocated to bonds, there's limited downside protection. Compared to a balanced benchmark, which typically has a higher bond allocation, this portfolio may be more volatile. Diversifying into other asset classes, such as bonds or real estate, could help stabilize returns and provide a buffer against equity market fluctuations, especially during periods of economic uncertainty.

Sectors Info

  • Financials
    29%
  • Energy
    21%
  • Technology
    14%
  • Industrials
    8%
  • Consumer Discretionary
    6%
  • Health Care
    5%
  • Telecommunications
    4%
  • Basic Materials
    4%
  • Consumer Staples
    4%
  • Utilities
    2%
  • Real Estate
    2%

Sector allocation reveals a concentration in financial services (29.47%) and energy (20.64%), which could increase sensitivity to sector-specific risks. While the technology sector also holds a significant share, the overall distribution is relatively balanced across various industries. However, heavy reliance on financial services and energy may lead to higher volatility, particularly during economic downturns or regulatory changes. Consider diversifying into underrepresented sectors like healthcare or consumer defensive, which can offer stability during market turbulence.

Regions Info

  • North America
    83%
  • Europe Developed
    8%
  • Japan
    3%
  • Asia Emerging
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly exposed to North America, accounting for 82.81% of the allocation. This concentration may limit diversification benefits and expose the portfolio to region-specific risks, such as economic downturns or political instability. Compared to global benchmarks, this portfolio underrepresents regions like Europe and Asia. Expanding exposure to these areas could enhance diversification, potentially reducing risk and capturing growth opportunities in emerging and developed markets outside North America.

Redundant positions Info

  • Vanguard Growth Portfolio
    Vanguard All-Equity ETF Portfolio
    iShares Core Equity Portfolio
    High correlation

The portfolio contains highly correlated assets, particularly among the Vanguard Growth Portfolio, Vanguard All-Equity ETF Portfolio, and iShares Core Equity Portfolio. High correlation means these assets tend to move in the same direction, which can reduce diversification benefits during market downturns. To enhance diversification, consider replacing some of these overlapping positions with less correlated assets. This can help mitigate risk by ensuring that not all holdings react similarly to market events, potentially stabilizing overall portfolio performance.

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 portfolio may not be at its most efficient risk-return ratio. This means there could be a better allocation of existing assets that enhances return potential for the same level of risk. Before optimizing, focus on reducing highly correlated holdings, which can improve diversification. Once correlations are addressed, consider adjusting allocations to align more closely with the Efficient Frontier, aiming for the best possible balance between risk and return.

Dividends Info

  • Vanguard FTSE Canadian High Dividend Yield 2.20%
  • Vanguard Growth Portfolio 1.30%
  • iShares S&P/TSX Capped Energy Index ETF 1.50%
  • iShares Core Equity Portfolio 0.90%
  • BMO S&P/TSX Equal Weight Banks 2.00%
  • Weighted yield (per year) 1.12%

The portfolio's overall dividend yield is modest at 1.12%, with the Vanguard FTSE Canadian High Dividend Yield ETF contributing the highest yield of 2.2%. For investors seeking income, this yield may be lower than desired. Dividend-paying assets can provide a steady income stream, especially during volatile markets. To increase income potential, consider adding or increasing exposure to higher-yielding assets. However, ensure that any changes align with your risk tolerance and investment goals, as higher yields often come with increased risk.

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