Balanced portfolio with strong US focus and low-cost broad diversification

Report created on Dec 27, 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 is composed of two main ETFs, with 65% allocated to the Vanguard Total Stock Market Index Fund and 35% to the Vanguard Total International Stock Index Fund. This allocation strategy leans heavily on equities, aiming for broad market exposure. Compared to typical balanced portfolios, which might include a mix of equities and bonds, this portfolio is more equity-focused. While this composition maximizes growth potential, it may also introduce higher volatility. To achieve a more traditional balanced approach, consider incorporating fixed-income assets, which can provide stability during market downturns.

Growth Info

Historically, the portfolio has shown a robust Compound Annual Growth Rate (CAGR) of 11.04%, indicating strong performance over time. However, it also experienced a maximum drawdown of -34.53%, reflecting the potential for significant short-term losses. This performance aligns with the risk profile of a balanced portfolio that is heavily weighted in equities. Compared to benchmarks, such as the S&P 500, the portfolio's performance is competitive. To manage potential drawdowns, consider strategies like dollar-cost averaging or setting aside a cash reserve for market dips.

Projection Info

Forward projections using Monte Carlo simulations, which assess potential future outcomes based on historical data, suggest a wide range of possible returns. The simulations indicate a 50th percentile return of 243.9% over the investment horizon. However, the 5th percentile suggests a more modest 28.85% return, highlighting the inherent uncertainty in forecasting. While these projections are useful for setting expectations, they are not guarantees of future performance. It's important to regularly review and adjust the portfolio as personal circumstances and market conditions change.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is overwhelmingly invested in stocks, accounting for over 99% of the allocation, with minimal cash holdings. This heavy equity focus suggests a growth-oriented strategy, but it may lack the diversification benefits that other asset classes, like bonds or real estate, can provide. Compared to a more diversified benchmark, this portfolio could be more susceptible to equity market volatility. To enhance diversification, consider adding other asset classes that offer different risk-return profiles, potentially reducing overall portfolio risk.

Sectors Info

  • Technology
    25%
  • Financials
    16%
  • Industrials
    11%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    4%
  • Real Estate
    3%
  • Utilities
    3%

Sector allocation shows a notable concentration in technology, at 24.6%, followed by financial services and industrials. This sectoral distribution is in line with global market trends but may expose the portfolio to higher volatility, particularly if tech stocks face downturns. Compared to a benchmark like the MSCI World Index, the sector balance is reasonable, yet the high tech exposure warrants attention. To mitigate sector-specific risks, regularly review sector weights and consider rebalancing if one sector becomes overly dominant.

Regions Info

  • North America
    68%
  • Europe Developed
    14%
  • Asia Emerging
    6%
  • Japan
    5%
  • Asia Developed
    4%
  • Australasia
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%

The portfolio's geographic allocation is heavily skewed towards North America, comprising 67.5% of the total. This is a common trait among US-based portfolios but may limit exposure to growth opportunities in emerging markets. Compared to global benchmarks, the portfolio has less representation in regions like Latin America and Europe Emerging. While US markets provide stability, diversifying geographically can help capture growth in other regions and reduce regional risk. Consider gradually increasing exposure to underrepresented areas for a more balanced global footprint.

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 can be optimized using the Efficient Frontier, which suggests the best risk-return trade-off for the current assets. While the current allocation is efficient, slight adjustments between the two ETFs could further enhance returns without significantly increasing risk. This optimization focuses on maximizing returns for a given level of risk, rather than diversification. Regularly reassessing the portfolio's position on the Efficient Frontier can help ensure it remains aligned with your risk tolerance and investment goals.

Dividends Info

  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.30%
  • Weighted yield (per year) 1.94%

With an overall dividend yield of 1.94%, the portfolio provides a modest income stream, primarily driven by the international ETF's 3.3% yield. Dividends can be a valuable component of total returns, especially for income-focused investors. While the yield is competitive, reinvesting dividends can further enhance growth over time. For those seeking higher income, exploring dividend-focused funds or stocks might be beneficial, though it could alter the risk profile.

Ongoing product costs Info

  • 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) 0.05%

The portfolio benefits from impressively low costs, with a total expense ratio (TER) of just 0.05%. This is a significant advantage, as lower fees can lead to better long-term returns by minimizing the drag on performance. Compared to industry averages, these costs are highly competitive, supporting the portfolio's growth potential. Maintaining low costs is crucial; therefore, regularly reviewing expense ratios and considering lower-cost alternatives if they arise is recommended.

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