A well-diversified balanced portfolio with strong focus on US stocks and low costs

Report created on Dec 28, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

The portfolio consists of four major ETFs, with a strong emphasis on equities. The Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares each make up 35% of the portfolio, while the Vanguard Total International Stock Index Fund ETF Shares accounts for 20%. The remaining 10% is allocated to the Vanguard Total Bond Market Index Fund ETF Shares. Compared to common benchmarks, this composition reflects a balanced approach, with a slight tilt towards domestic equities. This allocation provides a solid foundation for growth, but consider reviewing the overlap between similar equity ETFs to enhance diversification.

Growth Info

Historically, this portfolio has delivered an impressive Compound Annual Growth Rate (CAGR) of 11.13%, which is a strong performance relative to many benchmarks. However, it's important to note the maximum drawdown of -31.92%, indicating potential volatility. The portfolio's returns are concentrated in a few days, which is common in equity-heavy portfolios. This historic performance suggests solid growth potential, yet investors should be prepared for market fluctuations. Keep in mind that past performance doesn't guarantee future results, so it's wise to remain vigilant and adaptable to market changes.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns for this portfolio. With 1,000 simulations, the 5th percentile shows a modest gain of 9.78%, while the 50th and 67th percentiles indicate more optimistic growth at 207.57% and 302.97%, respectively. The annualized return across all simulations is 9.4%. While these projections are encouraging, remember that they are based on past data and assumptions, which may not fully capture future market conditions. Therefore, it's crucial to maintain a flexible investment strategy.

Asset classes Info

  • Stocks
    89%
  • Bonds
    10%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, which constitute nearly 90% of the allocation, with bonds making up just under 10%. This stock-heavy allocation aligns with a growth-oriented strategy, but it may expose the portfolio to higher volatility. Compared to typical balanced portfolios, this allocation leans more towards equities. While this can enhance potential returns, consider whether this level of risk aligns with your investment goals and risk tolerance. A slight increase in bond allocation could provide more stability during market downturns.

Sectors Info

  • Technology
    25%
  • Financials
    13%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Industrials
    9%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

Sector-wise, the portfolio is well-diversified, with a notable concentration in technology at nearly 25%, followed by financial services and healthcare. This sector allocation aligns closely with major benchmarks, indicating a balanced exposure to various industries. However, the heavy tech weighting could lead to increased volatility during periods of interest rate hikes or regulatory changes. To mitigate this risk, consider periodically reviewing sector allocations and adjusting as needed to maintain a balanced exposure that aligns with your risk tolerance and market outlook.

Regions Info

  • North America
    71%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly focused on North America, which accounts for over 71% of the allocation. This is a common trait in many US-based portfolios, providing exposure to a stable economic environment. However, the limited exposure to emerging markets and other regions may reduce potential diversification benefits. To enhance geographic diversification, consider gradually increasing allocations to underrepresented regions, which could offer growth opportunities and reduce reliance on the North American market.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly between 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, potentially limiting diversification benefits during market downturns. While correlation isn't inherently negative, it can impact risk management and portfolio performance. To improve diversification, consider reducing exposure to overlapping assets and exploring alternative investments that offer lower correlation with 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 current portfolio composition can be optimized using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. However, before optimization, focus on reducing the overlap between highly correlated assets. By reallocating among existing holdings, you can potentially enhance the portfolio's efficiency without introducing new investments. Remember, optimization is about achieving the best balance of risk and return, not necessarily adding new assets. Regularly reassess your asset allocation to ensure it aligns with your evolving investment goals.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.70%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.30%
  • Weighted yield (per year) 1.87%

This portfolio offers a modest total dividend yield of 1.87%, with the Vanguard Total Bond Market Index Fund ETF Shares contributing the highest yield at 3.7%. Dividend income can provide a steady cash flow, which is beneficial for investors seeking regular income. While the yield isn't exceptionally high, it complements the portfolio's growth focus. Consider whether the current dividend yield aligns with your income needs and explore opportunities to enhance yield if income generation is a priority.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • 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 portfolio's total expense ratio (TER) is impressively low at 0.04%, which is a significant advantage for long-term investors. Lower costs mean more of your returns stay in your pocket, contributing to better overall performance. Vanguard's reputation for low-cost investing supports this efficient cost structure. Maintaining low costs is crucial for maximizing returns, so continue to monitor fees and consider replacing higher-cost investments with more cost-effective alternatives if necessary to preserve this advantage.

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