A balanced US-focused portfolio with strong historical returns and moderate risk exposure

Report created on Jan 9, 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 consists of four ETFs with a heavy concentration in US equities, making up 75% of the total allocation. The remaining 25% is allocated to international equities, providing some diversification. Compared to common benchmarks like a 60/40 (stocks/bonds) portfolio, this is more aggressive due to its all-equity composition. This structure suggests a focus on growth, but the lack of fixed-income assets could increase volatility. Consider adding bonds or other asset classes to provide stability and reduce risk during market downturns, aligning with a more traditional balanced portfolio approach.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 12.61%, outperforming many benchmarks. However, it has also experienced a significant maximum drawdown of -34.15%, indicating vulnerability during market downturns. This performance suggests a high growth potential, but with considerable risk. Investors should be aware that past performance does not guarantee future results. To maintain strong returns while managing risk, consider strategies such as periodic rebalancing or incorporating hedging instruments.

Projection Info

Monte Carlo simulations, which use historical data to predict future performance, suggest a wide range of potential outcomes for this portfolio. With a median (50th percentile) projected gain of 317.43% and a 67th percentile of 445.45%, the outlook is optimistic. However, the 5th percentile projects a much lower gain of 35.61%, highlighting the uncertainty inherent in market predictions. Remember, simulations are based on past data and cannot predict future market conditions with certainty. Regular portfolio reviews and adjustments can help mitigate risks and capitalize on positive trends.

Asset classes Info

  • Stocks
    99%

The portfolio is heavily weighted towards stocks, comprising over 99% of the allocation, with minimal cash or other asset classes. This heavy stock concentration aligns with a growth-focused strategy but may increase volatility. In comparison to diversified portfolios that include bonds or real assets, this allocation could be riskier during market downturns. To enhance diversification and stability, consider introducing other asset classes such as bonds or commodities, which can help cushion the impact of equity market fluctuations.

Sectors Info

  • Technology
    27%
  • Financials
    15%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    7%
  • Energy
    5%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio's sector allocation is concentrated in technology (27%), followed by financial services and healthcare. This tech-heavy focus may lead to higher volatility, especially during interest rate hikes or tech sector downturns. In comparison, a more balanced sector allocation could provide steadier returns. To reduce sector-specific risks, consider diversifying into underrepresented sectors like real estate or utilities, which may offer more stability and income potential. Regularly reviewing sector weights can help maintain a balanced exposure.

Regions Info

  • North America
    86%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

With 85.7% of the portfolio invested in North America, the geographic exposure is heavily skewed towards the US market. This concentration may limit diversification benefits, especially if the US market underperforms. In contrast, global portfolios typically have more balanced geographic allocations. To enhance diversification and reduce regional risk, consider increasing exposure to other regions such as Europe or Asia. This can help capture growth opportunities in emerging markets and mitigate risks associated with regional economic downturns.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio includes highly correlated assets, particularly the Vanguard Total Stock Market Index Fund ETF Shares and the Vanguard S&P 500 ETF. High correlation means these assets tend to move together, limiting diversification benefits. During market downturns, this can increase portfolio risk as losses may be magnified. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation to your existing holdings. This change could help reduce volatility and enhance the portfolio's 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.

The current asset allocation could benefit from optimization using the Efficient Frontier, a method to achieve the best possible risk-return ratio. However, before optimizing, address the high correlation between certain assets, as diversification is crucial for effective optimization. By adjusting allocations among existing assets, you can potentially improve returns without significantly increasing risk. Remember, optimization focuses on current assets and allocation changes, not adding new ones. Regularly reassess your portfolio to ensure it remains aligned with your risk tolerance and investment goals.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 1.80%

The portfolio's total dividend yield is 1.8%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.6%. Dividends can provide a steady income stream and are particularly valuable in volatile markets. However, the overall yield is relatively modest, reflecting the growth-oriented focus of the portfolio. To enhance income, consider increasing allocation to high-dividend-paying assets or funds. This strategy can provide more consistent returns, especially during periods of market uncertainty or economic downturns.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The total expense ratio (TER) of the portfolio is impressively low at 0.04%, with individual ETF costs ranging from 0.03% to 0.08%. Low costs are advantageous as they enhance net returns over the long term. In comparison, actively managed funds often have higher fees, which can erode returns. Maintaining low-cost investments is a smart strategy for optimizing performance. Ensure to periodically review and compare fees across similar funds to keep costs minimal, thereby maximizing your portfolio's growth potential.

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