Balanced Portfolio with Broad Diversification and Overlapping Assets Needs Optimization for Improved Performance

Report created on Nov 4, 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 four ETFs, with a strong emphasis on equities, making up 90% of the total allocation. The Vanguard S&P 500 ETF and Vanguard Total Stock Market Index Fund ETF Shares are the primary holdings, accounting for 75% of the portfolio. The remaining portion is divided between international stocks and short-term treasury bonds. This composition indicates a balanced approach, providing exposure to both domestic and international markets. While the allocation is broadly diversified, the high concentration in equities suggests a moderate to high risk profile, suitable for investors seeking growth with some level of stability.

Growth Info

Historically, the portfolio has demonstrated impressive performance, with a compound annual growth rate (CAGR) of 15.22%. This indicates strong growth potential, although it experienced a maximum drawdown of -23.63%, reflecting potential volatility. The returns are concentrated in a small number of days, which is common in equity-heavy portfolios. This performance suggests that while the portfolio can deliver substantial returns, it is also susceptible to significant fluctuations. Investors should be prepared for periods of volatility and consider maintaining a long-term perspective to ride out market downturns.

Projection Info

A Monte Carlo simulation was conducted to assess the portfolio's future performance, using 1,000 simulations with a hypothetical initial investment. The results indicate a median expected return of 379.56%, with the majority of simulations yielding positive returns. The annualized return across all simulations is 12.65%. This suggests a favorable outlook, although the range of outcomes highlights the inherent uncertainty in financial markets. Investors should be aware that while the potential for high returns exists, there is also a risk of underperformance, emphasizing the importance of diversification and risk management strategies.

Asset classes Info

  • Stocks
    90%
  • Cash
    10%

The portfolio's asset class allocation is heavily skewed towards stocks, comprising nearly 90% of the total. The remaining allocation includes cash and a minimal exposure to bonds. This allocation reflects a growth-oriented strategy, prioritizing capital appreciation over income generation. While this approach can deliver significant returns, it also increases exposure to market volatility. Investors may consider diversifying further by incorporating more fixed-income assets to balance risk and return. This could provide a buffer against market downturns and offer more consistent returns over time.

Sectors Info

  • Technology
    26%
  • Financials
    13%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio's sector allocation is diversified, with significant exposure to technology, financial services, and healthcare sectors. Technology leads the pack, accounting for over 25% of the portfolio, reflecting its growth potential and historical performance. However, this concentration also introduces sector-specific risks, such as regulatory changes or technological disruptions. While the diversification across sectors is commendable, investors should monitor sector performance and consider rebalancing to mitigate risks associated with overexposure to any single sector.

Regions Info

  • North America
    76%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is heavily weighted towards North America, with over 75% of assets allocated to this region. This reflects a strong domestic bias, which can be advantageous given the robust performance of U.S. markets. However, it also limits exposure to international opportunities and diversification benefits. To enhance geographic diversification, investors might consider increasing allocations to other regions, such as emerging markets or developed economies outside North America. This could provide additional growth opportunities and reduce reliance on the performance of a single region.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation between the Vanguard S&P 500 ETF and Vanguard Total Stock Market Index Fund ETF Shares, which reduces diversification benefits. These assets tend to move in tandem, limiting the portfolio's ability to mitigate risk through uncorrelated investments. To enhance diversification, investors could explore adding assets with lower correlation to existing holdings. This might involve incorporating different asset classes or sectors that do not closely follow the same market trends, thereby reducing overall portfolio volatility and improving risk-adjusted 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.

Before optimizing the portfolio, addressing the overlapping holdings is crucial. The high correlation between certain assets suggests limited diversification benefits, which could be improved. By reducing overlap and incorporating less correlated assets, the portfolio's risk-adjusted returns could be enhanced. Moving along the efficient frontier allows for adjustments in risk and return profiles. A more conservative portfolio might include additional fixed-income assets, while a riskier one could increase equity exposure. This strategic reallocation can help achieve desired outcomes without drastically altering the current risk level.

Dividends Info

  • iShares® 0-3 Month Treasury Bond ETF 5.20%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.90%

The portfolio's dividend yield stands at 1.9%, with contributions from all ETFs, notably the Vanguard Total International Stock Index Fund ETF Shares with a 3.0% yield. While the yield provides some income, the focus remains on growth rather than income generation. Investors seeking higher income might consider increasing exposure to dividend-paying assets. However, it's crucial to balance this with growth objectives, ensuring that the pursuit of higher yields does not compromise the portfolio's overall performance and risk profile.

Ongoing product costs Info

  • iShares® 0-3 Month Treasury Bond ETF 0.07%
  • Vanguard S&P 500 ETF 0.03%
  • 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%, indicating cost-efficient management. This is largely due to the use of low-cost ETFs, which helps maximize returns by minimizing fees. Keeping investment costs low is a key factor in enhancing long-term performance. Investors should continue to monitor the expense ratios of their holdings and consider lower-cost alternatives if available. Maintaining a focus on cost efficiency will help preserve more of the portfolio's returns, contributing to its overall success.

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