Moderate Risk Growth Portfolio with Strong ESG Focus and Broad Diversification Ideal for Long-Term Investors

Report created on Nov 8, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is composed of two main ETFs: Vanguard ESG US Stock and Vanguard ESG International Stock, making up 70% and 30% respectively. It's a growth-focused portfolio with a higher risk classification, but it is broadly diversified across regions and sectors. The heavy weighting in US stocks indicates a strong home bias, while the international component provides a good level of global exposure. This composition suggests a focus on sustainable investing, which is a growing trend among investors looking to align their portfolios with their values.

Growth Info

Historically, the portfolio has shown a strong performance with a compound annual growth rate (CAGR) of 12.67%. However, it has also experienced significant volatility, with a maximum drawdown of -33.19%. This indicates that while the portfolio has the potential for high returns, it also carries a risk of substantial losses during market downturns. The concentration of returns over just 16 days highlights the importance of staying invested to capture these gains. Investors should be prepared for periods of volatility and ensure they are comfortable with the potential swings in value.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The simulation revealed a median return of 263.81% and a 67th percentile return of 400.91%, indicating a high potential for growth. The annualized return across all simulations was 11.39%, suggesting that the portfolio is likely to continue performing well over the long term. Monte Carlo simulations provide a range of possible outcomes, helping investors understand the potential risks and rewards. This tool reinforces the importance of a long-term investment horizon to ride out market fluctuations.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is heavily invested in stocks, with a small allocation to cash and other assets. This high equity exposure aligns with the growth objective and higher risk classification. The limited diversification across asset classes means the portfolio is more susceptible to stock market volatility. To mitigate risk, investors could consider introducing more fixed-income assets. However, since the portfolio is managed through ETFs, the asset allocation is likely optimized by the fund managers. Monitoring the equity market conditions and being prepared for potential volatility is crucial for maintaining investment confidence.

Sectors Info

  • Technology
    30%
  • Financials
    17%
  • Health Care
    12%
  • Consumer Discretionary
    12%
  • Telecommunications
    9%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Real Estate
    3%
  • Basic Materials
    3%

Sector allocation is well-diversified, with significant exposure to technology, financial services, and healthcare. This diversification across sectors can help mitigate specific sector risks and capture growth opportunities across the economy. However, the high concentration in technology could lead to increased volatility, given the sector's susceptibility to rapid changes. Investors might consider rebalancing if sector concentrations shift significantly over time. Keeping an eye on sector performance and potential shifts in economic conditions can help maintain a balanced and diversified portfolio, aligning with the broader market trends.

Regions Info

  • North America
    71%
  • Europe Developed
    11%
  • Japan
    5%
  • Asia Emerging
    5%
  • Asia Developed
    4%
  • Australasia
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is primarily focused on North America, with additional exposure to Europe, Japan, and emerging Asia. This geographic diversification offers a balance between developed and emerging markets, providing potential growth opportunities while managing risk. The strong North American bias reflects the home market's strength but may limit exposure to faster-growing regions. Investors may want to monitor global economic developments and consider diversifying further into underrepresented regions if market conditions change. A balanced geographic allocation helps capture global growth while mitigating regional risks.

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 optimization chart suggests that while the current allocation is efficient, there's room for adjustment along the efficient frontier. Investors looking for higher returns might consider increasing their equity exposure, while those seeking reduced risk could add more fixed-income assets. However, the portfolio's structure is already broadly diversified, so focusing on maintaining this balance is key. Before making any changes, investors should ensure their risk tolerance and financial goals align with potential adjustments. Optimizing a portfolio involves finding the right balance between risk and return, tailored to individual preferences.

Dividends Info

  • Vanguard ESG US Stock 1.10%
  • Vanguard ESG International Stock 3.10%
  • Weighted yield (per year) 1.70%

The portfolio offers a moderate dividend yield of 1.7%, with the international component providing a higher yield than the US stocks. This income can be a valuable addition to the total return, especially in volatile markets. While the focus is on growth, the dividends provide some income stability. Investors might consider reinvesting dividends to compound returns over time. However, if income is a priority, exploring higher-yielding options could be beneficial. Balancing growth and income is key to achieving investment objectives, particularly for those nearing retirement or needing regular cash flow.

Ongoing product costs Info

  • Vanguard ESG US Stock 0.09%
  • Vanguard ESG International Stock 0.12%
  • Weighted costs total (per year) 0.10%

The portfolio's costs are low, with a total expense ratio (TER) of 0.1%. This is advantageous as lower costs mean more of the investment returns are retained by the investor. Cost efficiency is crucial for long-term growth, as high fees can erode returns over time. Vanguard's ETFs are known for their cost-effectiveness, making them attractive options for cost-conscious investors. Maintaining a focus on low-cost investments can significantly enhance overall portfolio performance. Regularly reviewing and managing costs ensures that the portfolio remains efficient and aligned with financial goals.

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