A balanced US-focused portfolio with substantial large-cap exposure and moderate international diversification

Report created on Dec 7, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is primarily composed of ETFs, with a strong emphasis on the Vanguard S&P 500 ETF, which makes up 60% of the holdings. Complementing this are the Vanguard Mid-Cap Index Fund ETF Shares at 20%, iShares Core S&P Small-Cap ETF at 10%, and Vanguard Total International Stock Index Fund ETF Shares at 10%. This allocation indicates a focus on US equity markets, particularly large-cap stocks, with a moderate tilt towards mid-cap and small-cap stocks. The inclusion of international stocks provides some global exposure, but the portfolio remains predominantly US-centric.

Growth Info

Historically, the portfolio has shown robust performance with a compound annual growth rate (CAGR) of 12.92%. However, it has experienced a significant maximum drawdown of -35.61%, highlighting the volatility inherent in equity-heavy portfolios. The majority of returns have been concentrated in a small number of trading days, indicating potential risks if these days are missed. While past performance can provide insights, it's important to remember that it doesn't guarantee future results, particularly in unpredictable markets.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes. With 1,000 simulations, the median (50th percentile) shows a 296.61% portfolio value increase, while the 5th percentile predicts a much lower 24.38% increase. This method uses historical data to estimate future performance, but it's not foolproof, as it doesn't account for unprecedented market events. Investors should use these projections as a guide rather than a definitive forecast, ensuring they remain prepared for a variety of market scenarios.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, comprising approximately 99.73% of the total allocation. This high concentration in equities suggests a growth-focused strategy, albeit with increased exposure to market volatility. There is minimal allocation to cash and other asset classes, which may limit the portfolio's ability to cushion against downturns. Diversifying into bonds or other less correlated asset classes could enhance stability and provide a more balanced risk-return profile over time.

Sectors Info

  • Technology
    26%
  • Financials
    14%
  • Industrials
    11%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Real Estate
    4%
  • Energy
    4%
  • Utilities
    4%
  • Basic Materials
    3%

Sector allocation is led by Technology at nearly 26%, followed by Financial Services and Industrials. This concentration in a few sectors can drive strong returns during favorable market conditions but may expose the portfolio to sector-specific risks. A more balanced sector distribution could mitigate these risks, ensuring that downturns in specific industries don't disproportionately impact overall performance. Investors should consider reassessing sector weights to align with their risk tolerance and market outlook.

Regions Info

  • North America
    90%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

The geographic allocation is predominantly focused on North America, accounting for over 90% of the portfolio. While this aligns with a US-centric investment strategy, it limits exposure to potential growth opportunities in other regions. The modest allocation to Europe, Asia, and other areas provides some diversification but is insufficient to fully capture global market dynamics. Increasing international exposure could enhance diversification, reduce regional risk, and potentially improve long-term returns.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Mid-Cap Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation among its assets, particularly between the Vanguard S&P 500 ETF and the Vanguard Mid-Cap Index Fund ETF Shares. This correlation indicates that these assets tend to move in tandem, which can limit diversification benefits. Reducing holdings in highly correlated assets and introducing those with lower correlation can help manage risk and improve portfolio resilience. This strategy can be particularly effective in volatile markets, where diversification can offer a buffer against losses.

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.

Optimization using the Efficient Frontier suggests potential improvements in the portfolio's risk-return balance. By adjusting the weights of existing assets, investors can aim for a more efficient allocation that maximizes returns for a given level of risk. However, this process is based solely on the current assets and doesn't account for external factors or new asset classes. It's important to ensure that optimization aligns with personal investment goals and risk tolerance, rather than strictly focusing on mathematical efficiency.

Dividends Info

  • iShares Core S&P Small-Cap ETF 1.20%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 1.41%

The portfolio's total dividend yield is 1.41%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 2.9%. Dividends provide a steady income stream and can enhance total returns, especially during market downturns. However, the current yield is relatively modest, reflecting the portfolio's growth-oriented focus. Investors seeking higher income may consider increasing allocations to higher-yielding assets, though this may involve trade-offs with growth potential.

Ongoing product costs Info

  • iShares Core S&P Small-Cap ETF 0.06%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 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) stands at a low 0.04%, reflecting the cost-effectiveness of the chosen ETFs. Keeping costs low is crucial for maximizing long-term returns, as high fees can erode gains over time. Investors should regularly review expense ratios and consider switching to more cost-effective options if available. While the current costs are competitive, being vigilant about fees can contribute to better net performance over the investment horizon.

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