Balanced Portfolio with Strong Diversification and Moderate Risk for Long-Term Growth and Income

Report created on Dec 3, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio consists of four ETFs: Invesco QQQ Trust, Vanguard Total Stock Market Index Fund ETF Shares, Vanguard Dividend Appreciation Index Fund ETF Shares, and Vanguard Total International Stock Index Fund ETF Shares. It is well-diversified across various sectors and regions, with a focus on equities. The asset allocation leans heavily towards stocks, comprising over 99% of the portfolio. This composition suggests a growth-oriented strategy with potential for capital appreciation. To maintain balance, consider periodically reviewing the allocation to ensure it aligns with investment goals and risk tolerance.

Growth Info

Historically, the portfolio has demonstrated a commendable compound annual growth rate (CAGR) of 13.99%, indicating strong performance over time. However, it also experienced a maximum drawdown of -31.02%, highlighting the inherent volatility in a stock-heavy portfolio. This performance suggests that while the portfolio has potential for significant returns, it also carries a certain level of risk. To mitigate downside risk, consider incorporating assets that provide stability during market downturns, such as bonds or other fixed-income securities.

Projection Info

Using a Monte Carlo simulation, which models potential future outcomes based on historical data, the portfolio shows promising results. With a hypothetical initial investment, the simulation's median outcome suggests a potential growth of 407.99%. The high number of simulations with positive returns indicates a favorable long-term outlook. However, as with all projections, these outcomes are not guaranteed. To enhance predictability, consider diversifying further across asset classes to reduce the impact of market volatility on the portfolio's future performance.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with a minor allocation to cash and other assets. This concentration in equities suggests a focus on capital growth, but it also increases exposure to market fluctuations. A more balanced asset class distribution might help mitigate risks associated with market downturns. Consider introducing fixed-income assets to provide a buffer against volatility and generate steady income. This approach can help achieve a more stable risk-return profile, aligning with a balanced investment strategy.

Sectors Info

  • Technology
    33%
  • Financials
    12%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    9%
  • Consumer Staples
    7%
  • Basic Materials
    3%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    1%

Sector allocation within the portfolio is diverse, with significant exposure to technology, financial services, and consumer cyclicals. This diversity helps capture growth opportunities across various economic sectors. However, the heavy weighting in technology might lead to increased volatility given the sector's cyclical nature. To achieve better sector balance, consider gradually reallocating funds to underrepresented sectors. This strategy can help reduce sector-specific risks and enhance the portfolio's resilience against economic shifts.

Regions Info

  • North America
    80%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is predominantly focused on North America, with additional exposure to developed and emerging markets. This allocation provides access to a broad range of economic environments, potentially enhancing growth prospects. However, the heavy North American bias might limit exposure to opportunities in other regions. To capitalize on global growth, consider incrementally increasing investments in underrepresented regions. This diversification can help mitigate region-specific risks and capture opportunities in diverse economic landscapes.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard Dividend Appreciation Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard Total Stock Market Index Fund ETF Shares and Vanguard Dividend Appreciation Index Fund ETF Shares. This correlation suggests limited diversification benefits from holding both assets simultaneously. To enhance diversification, consider reducing exposure to one of these ETFs and reallocating to assets with lower correlations. This adjustment can help improve the portfolio's overall risk-return profile by reducing overlap and enhancing diversification.

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.

Before optimizing, focus on reducing asset overlap, as highly correlated assets limit diversification benefits. By addressing this, the portfolio can achieve a more efficient risk-return balance. To move towards a riskier or more conservative portfolio, consider reallocating along the efficient frontier. Shifting towards equities can increase risk and potential returns, while adding bonds can reduce risk and stabilize returns. This strategy allows for fine-tuning the portfolio's risk profile, aligning it with evolving investment goals and risk tolerance.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.45%

The portfolio offers a moderate dividend yield of 1.45%, providing a steady income stream alongside potential capital appreciation. The yield is primarily driven by the Vanguard Dividend Appreciation Index Fund ETF Shares and Vanguard Total International Stock Index Fund ETF Shares. This combination of growth and income can be appealing for investors seeking a balanced approach. To potentially increase income, consider exploring higher-yielding assets, while ensuring they align with the overall risk and return objectives.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • 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) 0.11%

The portfolio's total expense ratio (TER) is relatively low at 0.11%, reflecting cost-effective management. This low-cost structure helps maximize net returns by minimizing fees, which can erode gains over time. Keeping costs low is crucial for long-term investment success. To maintain this advantage, periodically review the expense ratios of existing and potential investments. Prioritize low-cost funds that align with the portfolio's investment strategy and risk tolerance, ensuring that cost efficiency remains a cornerstone of the portfolio.

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