A balanced portfolio with a strong focus on US equities and low-cost index funds
Report created on Dec 23, 2024Risk profile
4/7
Diversification profile
3/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 76.44% -
BN Vanguard Total Bond Market Index Fund ETF Shares
BND - US9219378356 18.98% -
VT VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND ADMIRAL SHARES
VTIAX - US9219098186 4.58%
The portfolio is heavily weighted towards the Vanguard S&P 500 ETF, making up over 76% of its composition. This suggests a strong focus on large-cap US equities. The remaining allocation is primarily in bonds, with the Vanguard Total Bond Market Index Fund ETF Shares comprising nearly 19%, and a small portion in international stocks. Compared to common benchmarks, this allocation leans heavily on US equities, which can provide growth potential but may lack diversification. Consider diversifying further to include more international equities or alternative asset classes for a more balanced approach.
Growth
Historically, the portfolio has delivered a solid Compound Annual Growth Rate (CAGR) of 11.15%, which is impressive. However, it also experienced a maximum drawdown of nearly 30%, indicating vulnerability during market downturns. Comparing this to benchmarks, the portfolio's performance aligns well with typical equity-heavy portfolios. While past performance is not a guarantee of future results, maintaining a balance between growth and risk is crucial. Regularly reviewing asset allocation can help mitigate potential future drawdowns.
Projection
Using Monte Carlo simulations, which analyze potential future outcomes based on historical data, the portfolio's projected annualized return is 7.28%. This simulation indicates a strong likelihood of positive returns, with 952 out of 1,000 simulations showing gains. However, the range of potential outcomes is wide, reflecting market uncertainties. While these projections offer valuable insights, remember that they rely on past data and can't predict future events. Continuously monitor market conditions and adjust the portfolio as needed to stay aligned with your financial goals.
Asset classes
- Stocks 81%
- Bonds 19%
The portfolio is primarily composed of stocks at 80.87% and bonds at 18.69%, with minimal cash and other investments. This asset allocation is typical for a balanced portfolio, offering growth potential from equities and stability from bonds. However, the high equity exposure may increase volatility. Compared to benchmarks, the stock-to-bond ratio is slightly aggressive. To enhance diversification, consider incorporating other asset classes such as real estate or commodities, which can provide additional stability and reduce overall risk.
Sectors
- Technology 26%
- Financials 11%
- Health Care 9%
- Consumer Discretionary 8%
- Telecommunications 7%
- Industrials 6%
- Consumer Staples 5%
- Energy 3%
- Utilities 2%
- Real Estate 2%
- Basic Materials 2%
- Consumer Discretionary 1%
The sector allocation shows a significant concentration in technology at nearly 26%, followed by financial services and healthcare. This tech-heavy focus could lead to higher volatility, especially during periods of economic uncertainty or interest rate changes. Compared to benchmarks, the portfolio's sector composition is typical for a US equity-centric strategy. To mitigate sector-specific risks, consider diversifying into underrepresented areas like utilities or consumer staples, which may offer more stability during market fluctuations.
Regions
- North America 76%
- Europe Developed 2%
- Asia Emerging 1%
- Japan 1%
- Asia Developed 1%
Geographically, the portfolio is predominantly exposed to North America, with over 76% allocation, and minimal exposure to other regions. This heavy US focus limits international diversification, which could reduce potential gains from global markets. Compared to benchmarks, the geographic distribution is less diverse. To enhance diversification and mitigate regional risks, consider increasing exposure to developed and emerging markets outside North America. This can help capture growth opportunities in other economies and reduce reliance on the US market.
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 optimization analysis suggests that it could benefit from adjustments to achieve a more efficient risk-return balance. The Efficient Frontier concept helps identify the optimal allocation for maximizing returns at a given risk level. Currently, the portfolio may not be fully optimized, given its high equity concentration. Consider reallocating assets to achieve a better balance between risk and return. This might involve increasing bond exposure or incorporating other asset classes to improve diversification and enhance overall efficiency.
Dividends
- Vanguard Total Bond Market Index Fund ETF Shares 3.30%
- Vanguard S&P 500 ETF 0.90%
- VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND ADMIRAL SHARES 3.30%
- Weighted yield (per year) 1.47%
The portfolio's dividend yield stands at 1.47%, with the Vanguard Total Bond Market Index Fund ETF Shares and the Vanguard Total International Stock Index Fund ADMIRAL SHARES contributing significantly. Dividends can provide a steady income stream, especially for income-focused investors. While the yield is modest, it aligns with the portfolio's balanced nature. To increase income potential, consider allocating more to high-dividend-paying stocks or funds. This strategy can enhance cash flow and provide a buffer during market downturns.
Ongoing product costs
- Vanguard Total Bond Market Index Fund ETF Shares 0.03%
- Vanguard S&P 500 ETF 0.03%
- VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND ADMIRAL SHARES 0.12%
- Weighted costs total (per year) 0.03%
The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.03%. Low fees are advantageous as they enhance long-term returns by minimizing the drag on performance. This cost efficiency aligns well with best practices for optimizing investment returns. While the current costs are already low, regularly reviewing expense ratios and seeking even more cost-effective options can further improve net returns. Staying vigilant about fees is crucial for maintaining portfolio efficiency over time.
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