A balanced portfolio with strong US equity focus and low overall costs

Report created on Jan 13, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

The portfolio comprises three ETFs with a significant 72.9% allocation to the Vanguard Total Stock Market Index Fund, 20.3% to the Vanguard Total International Stock Index Fund, and 6.8% to the Vanguard Tax-Exempt Bond Index Fund. This composition leans heavily towards equities, reflecting a growth-focused strategy with a modest bond component for stability. Compared to common balanced portfolios, this one is more equity-centric, which can enhance growth potential but also increase exposure to market volatility. Consider maintaining the current allocation if comfortable with this equity exposure, or slightly increasing bonds for more stability.

Growth Info

Historically, the portfolio has delivered a strong compound annual growth rate (CAGR) of 12.55%, indicating robust performance over time. The maximum drawdown of -33.6% suggests significant volatility during market downturns. Compared to benchmarks, this performance is impressive, reflecting the strength of the US equity market. It's important to note that past performance doesn't guarantee future results. If the volatility is a concern, consider diversifying further into bonds or other asset classes to buffer against potential downturns.

Projection Info

Forward projections using Monte Carlo simulations, which analyze potential future outcomes based on historical data, suggest an annualized return of 8.49%. With 970 out of 1,000 simulations showing positive returns, this indicates a favorable outlook. However, the reliance on historical data means these projections are not foolproof. If seeking to enhance potential outcomes, consider exploring alternative asset classes or strategies that could offer higher returns or reduced risk.

Asset classes Info

  • Stocks
    93%
  • Bonds
    7%
  • Cash
    1%

The portfolio's asset allocation is predominantly in stocks (92.6%), with a small portion in bonds (6.8%) and minimal cash holdings. This concentration in equities aligns with a growth-oriented strategy, but it may limit diversification benefits. Compared to typical balanced portfolios, which often have a more even split between stocks and bonds, this allocation is heavily skewed towards equities. To enhance diversification, consider gradually increasing the bond allocation or exploring other asset classes like real estate or commodities.

Sectors Info

  • Technology
    25%
  • Financials
    14%
  • Health Care
    10%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    3%
  • Real Estate
    3%
  • Utilities
    3%

The sector allocation shows a notable concentration in technology (25.1%), followed by financial services (14%) and healthcare (10.3%). This sectoral balance is typical for a growth-focused portfolio, but it does expose the portfolio to sector-specific risks. For instance, technology-heavy portfolios might experience increased volatility during interest rate hikes. To mitigate these risks, consider diversifying into underrepresented sectors, potentially balancing the portfolio further.

Regions Info

  • North America
    74%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is heavily weighted towards North America (74.2%), with smaller allocations to Europe and Asia. This reflects a strong home-country bias, common among US investors. While this has benefited from the US market's strength, it also exposes the portfolio to regional risks. Consider increasing exposure to emerging markets or other developed regions to enhance diversification and reduce reliance on North American performance.

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 potentially be optimized using the Efficient Frontier, which identifies the best possible risk-return ratio for a given set of assets. This involves reallocating existing holdings to achieve better efficiency without necessarily adding new assets. While this optimization focuses on maximizing returns for a given level of risk, it may not address diversification or other specific goals. Consider consulting with a financial advisor to explore optimization strategies that align with your broader investment objectives.

Dividends Info

  • Vanguard Tax-Exempt Bond Index Fund ETF Shares 3.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 1.86%

The overall portfolio yield is 1.86%, with the highest contribution from the Vanguard Total International Stock Index Fund at 3.4%. Dividends can provide a steady income stream, beneficial for reinvestment or passive income. For investors focusing on income generation, consider increasing exposure to higher-yielding assets, though this may involve trade-offs with growth potential. Balancing growth and income needs is key to aligning with investment goals.

Ongoing product costs Info

  • Vanguard Tax-Exempt Bond Index Fund ETF Shares 0.05%
  • 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%, reflecting the cost-efficiency of Vanguard ETFs. Low costs are advantageous as they enhance net returns over the long term. Compared to typical portfolio costs, this is highly competitive and beneficial for compounding growth. Continue monitoring for any fee changes and explore opportunities to further reduce costs, such as switching to lower-cost alternatives if they offer similar exposures.

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