A cautious portfolio with strong equity focus and limited diversification across sectors

Report created on Dec 22, 2024

Risk profile Info

3/7
Cautious
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

This portfolio is predominantly composed of equities, making up 48% of the total allocation, with a significant portion in a single equity index account. Bonds account for 22%, providing some stability, while other funds and real estate contribute to diversification. Compared to common benchmarks, this portfolio leans heavily on equities, which can be more volatile. A more balanced allocation might include more fixed income or alternative assets to reduce risk. Consider diversifying further by including different asset types to mitigate potential market fluctuations.

Growth Info

Historically, the portfolio has delivered a Compound Annual Growth Rate (CAGR) of 9.01%, which is quite strong. However, it also experienced a maximum drawdown of -25.84%, indicating vulnerability during market downturns. Comparing this to a benchmark, the drawdown suggests a need for better risk management. While past performance is no guarantee of future results, understanding these metrics can help in adjusting the allocation to buffer against future downturns. Consider incorporating more defensive assets to reduce the impact of drawdowns.

Projection Info

The Monte Carlo simulation, a method using historical data to forecast potential outcomes, indicates a median return of 161.76% with a positive return in 970 out of 1,000 simulations. This suggests a favorable outlook, but remember, simulations are based on historical data and assumptions. They don't predict exact future performance. Given this, continue monitoring market trends and adjust allocations as needed. It's wise to prepare for various scenarios by maintaining a diversified approach.

Asset classes Info

  • Stocks
    48%
  • Bonds
    22%
  • No data
    9%

The asset allocation is dominated by equities, with stocks representing 48% of the portfolio. Bonds are underrepresented at 22%, which might be less than what is typically recommended for a cautious investor. A more balanced allocation across asset classes could enhance diversification and reduce risk. Consider increasing exposure to bonds or other fixed income assets to align with a cautious risk profile and stabilize the portfolio during volatile periods.

Sectors Info

  • No data
    57%

The portfolio's sector exposure is not clearly defined, with 57% classified as "Unknown." This lack of clarity can hinder effective diversification and risk management. Sector diversification is crucial as different sectors react differently to economic changes. For instance, tech-heavy portfolios may face higher volatility during interest rate hikes. Clarifying and balancing sector allocations could improve resilience and provide more consistent returns across varying market conditions.

Regions Info

  • No data
    57%

The geographic allocation is largely unspecified, with 57% categorized as "Unknown." This may limit the benefits of geographic diversification, which can help mitigate risks associated with regional economic downturns. A well-diversified geographic allocation is key to capturing growth opportunities worldwide. Consider assessing and adjusting geographic exposure to ensure alignment with global benchmarks and to enhance diversification.

Redundant positions Info

  • CREF Social Choice Account Class R2
    College Retirement Equities Fund - CREF Stock Account
    CREF Global Equities Account Class R2
    CREF Equity Index Account - R2
    High correlation

The portfolio contains several highly correlated assets, particularly among equity funds. High correlation means these assets tend to move in the same direction, reducing diversification benefits. During market downturns, this can lead to increased risk as declines in one asset may be mirrored by others. To enhance diversification, consider replacing some of these correlated assets with ones that have lower correlation, thereby improving the portfolio's resilience.

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 could be optimized by addressing the high correlation among assets, which limits diversification. The Efficient Frontier, a concept that helps find the best possible risk-return ratio, suggests a more efficient portfolio could achieve a higher expected return of 3.74% with a lower risk level. Consider reallocating assets to reduce correlation and enhance efficiency, focusing on achieving a better balance between risk and return.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.30%
  • Weighted yield (per year) 0.73%

The portfolio includes assets with a total dividend yield of 0.73%, primarily driven by the bond ETF's yield of 3.3%. Dividends can provide a steady income stream, beneficial for cautious investors seeking regular cash flow. However, the overall yield is relatively low. To enhance income potential, consider increasing allocation to higher-yielding assets, keeping in mind the balance between yield and risk.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.01%

The portfolio's costs are impressively low, with the Vanguard bond ETF having a Total Expense Ratio (TER) of just 0.03%. Low costs contribute significantly to long-term performance, as they allow more of the portfolio's returns to be retained. Maintaining a focus on cost-efficient investments is crucial. Regularly review and compare the costs of existing holdings with potential alternatives to ensure continued cost-effectiveness.

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