A balanced portfolio with strong US exposure and moderate international diversification
Report created on Jan 9, 2025Risk profile
4/7
Diversification profile
4/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 41.50% -
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 29.75% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 28.75%
The portfolio is heavily weighted towards equities, with 99.4% in stock ETFs, which is typical for a balanced profile. The Vanguard S&P 500 ETF holds the largest share at 41.5%, followed by the Invesco NASDAQ 100 ETF at 29.75%, and the Vanguard Total International Stock Index Fund at 28.75%. This composition aligns with a growth-focused strategy, emphasizing large-cap US stocks. While this can be beneficial for capturing US market growth, it may lack the defensive qualities of bonds or other asset classes, which can provide stability during market downturns. Consider adding fixed-income assets to improve risk-adjusted returns.
Growth
Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 13.12%. This is impressive compared to typical benchmarks like the S&P 500. However, the maximum drawdown of -28.34% highlights potential volatility. The concentration of returns in just 17 days suggests that market timing could significantly impact performance. While past performance is encouraging, it does not guarantee future results. To potentially reduce volatility, consider diversifying into less correlated asset classes.
Projection
Monte Carlo simulations, which use historical data to project future outcomes, indicate a wide range of potential returns. The median outcome suggests a 377.68% increase, while the 5th percentile shows a 47.4% increase. With 993 out of 1,000 simulations showing positive returns, the projections are optimistic. However, it's crucial to remember that these are based on historical data and assumptions, which may not hold true in the future. Regularly reviewing and adjusting the portfolio in response to changing market conditions can help manage risks.
Asset classes
- Stocks 99%
- Cash 1%
The portfolio's asset allocation is heavily skewed towards equities, with negligible cash and other assets. This concentration can lead to higher returns during bull markets but also increases vulnerability to market downturns. Compared to typical balanced benchmarks, which often include bonds, this portfolio may be more volatile. Introducing a mix of bonds or alternative investments could enhance diversification and provide a buffer against market volatility, aligning more closely with a balanced investment strategy.
Sectors
- Technology 33%
- Consumer Discretionary 12%
- Financials 12%
- Telecommunications 10%
- Health Care 9%
- Industrials 8%
- Consumer Staples 6%
- Basic Materials 3%
- Energy 3%
- Utilities 2%
- Real Estate 2%
Sector allocation shows a strong emphasis on technology, which comprises 32.6% of the portfolio. While this sector has driven significant growth in recent years, it is also subject to higher volatility, especially during economic shifts or interest rate changes. The portfolio also includes consumer cyclicals and financial services, providing some diversification. To mitigate sector-specific risks, consider balancing the portfolio with sectors that may perform differently in varying economic conditions, such as utilities or consumer defensive.
Regions
- North America 73%
- Europe Developed 12%
- Asia Emerging 5%
- Japan 4%
- Asia Developed 3%
- Australasia 1%
- Africa/Middle East 1%
- Latin America 1%
With 72.6% of assets in North America, the portfolio is heavily exposed to the US market. This aligns with its focus on large-cap US stocks but may limit exposure to growth opportunities in other regions. The remaining allocation includes Europe and Asia, which offer some international diversification. However, emerging markets are notably underrepresented. Increasing exposure to these regions could enhance diversification and capture growth in developing economies, potentially improving long-term 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 portfolio could benefit from optimization using the Efficient Frontier, which helps identify the best risk-return balance for a given set of assets. By adjusting the allocation among existing assets, you might achieve a better risk-adjusted return without adding new investments. This approach focuses on maximizing returns for a given level of risk or minimizing risk for a given return level, ensuring that the portfolio is aligned with your financial goals and risk tolerance.
Dividends
- Invesco NASDAQ 100 ETF 0.60%
- Vanguard S&P 500 ETF 1.20%
- Vanguard Total International Stock Index Fund ETF Shares 3.40%
- Weighted yield (per year) 1.65%
The portfolio's overall dividend yield is 1.65%, with the Vanguard Total International Stock Index Fund contributing the highest yield at 3.4%. Dividends can provide a steady income stream and help cushion against market volatility. For investors seeking income, increasing the allocation to higher-yielding assets or funds could enhance dividend income. However, it's essential to balance this with growth objectives, as high-yielding stocks may not offer significant capital appreciation.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- Vanguard S&P 500 ETF 0.03%
- Vanguard Total International Stock Index Fund ETF Shares 0.08%
- Weighted costs total (per year) 0.08%
The portfolio's total expense ratio (TER) is a low 0.08%, which is excellent for long-term performance. Lower costs mean more of your returns stay in your pocket, compounding over time. This cost efficiency aligns with best practices in portfolio management. Maintaining this low-cost structure is beneficial, but it's also worth periodically reviewing to ensure no new, more cost-effective options are available that could further enhance returns.
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