A balanced portfolio with strong US focus and high tech sector exposure

Report created on Dec 28, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

This portfolio comprises four ETFs, with a significant tilt towards US equities. The Vanguard S&P 500 ETF and the Invesco NASDAQ 100 ETF together form 70% of the portfolio, focusing heavily on large-cap US stocks. The Vanguard Total Stock Market Index Fund ETF covers a broader range of US equities, while the Vanguard Total International Stock Index Fund ETF introduces some international diversification. Compared to common benchmarks, this portfolio leans heavily on US equities, which can limit exposure to global opportunities. To enhance diversification, consider increasing the allocation to international markets or adding other asset classes like bonds.

Growth Info

Historically, this portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 14.89%. This impressive growth rate outpaces many traditional benchmarks, suggesting strong past performance. However, it also experienced a maximum drawdown of -27.98%, indicating significant volatility during market downturns. While past performance can provide insights, it's essential to remember that it does not guarantee future results. Consider incorporating assets with lower volatility or exploring defensive strategies to mitigate potential drawdowns in the future.

Projection Info

The Monte Carlo simulation, a method using historical data to project potential future outcomes, suggests a wide range of possibilities for this portfolio. The median scenario projects a 460.14% increase, but outcomes vary significantly. The simulation indicates a high likelihood of positive returns, with 993 out of 1,000 simulations ending positively. However, the reliance on historical data means these projections are not definitive. To prepare for various market conditions, consider stress-testing the portfolio against different economic scenarios or diversifying further to buffer against potential downturns.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with over 99% allocation, leaving minimal exposure to other asset classes. This concentration can lead to higher volatility, as stocks are generally more volatile than bonds or other fixed-income securities. Compared to more balanced portfolios, this allocation lacks the stabilizing effect that bonds can provide. To achieve a more balanced risk-return profile, consider introducing fixed-income assets, which can help cushion the portfolio during market downturns and provide more consistent returns over time.

Sectors Info

  • Technology
    36%
  • Consumer Discretionary
    12%
  • Telecommunications
    11%
  • Financials
    10%
  • Health Care
    9%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio is predominantly invested in the technology sector, accounting for nearly 36% of the total allocation. While this sector has delivered robust returns historically, it also tends to be more volatile, especially during periods of interest rate changes. Other sectors like consumer cyclicals and communication services also hold significant weights. Compared to benchmarks, this portfolio is tech-heavy, which can lead to heightened risk. To mitigate sector-specific risks, consider diversifying into sectors with lower correlation to technology, such as utilities or consumer defensives.

Regions Info

  • North America
    90%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is overwhelmingly focused on North America, with nearly 90% of assets allocated there. This concentration can limit exposure to growth opportunities in emerging and developed markets outside the US. While North America has been a strong performer, geographic diversification can reduce risk and provide access to different economic cycles. To enhance global exposure, consider increasing investments in regions like Europe, Asia, or emerging markets, which can offer diversification benefits and potential growth.

Redundant positions Info

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

The portfolio has highly correlated assets, particularly between the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF. High correlation means these assets tend to move together, which can limit diversification benefits during market downturns. When assets are too similar, the portfolio may not achieve the risk reduction that diversification typically provides. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation to the existing holdings, potentially from a different asset class or geographic region.

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 benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. Currently, the portfolio's heavy reliance on US equities and highly correlated assets suggests room for improvement. By adjusting the allocation among existing assets or introducing new ones, the portfolio can potentially enhance returns without increasing risk. Consider using optimization tools to explore different allocation scenarios, ensuring the portfolio aligns with your risk tolerance and investment objectives while maintaining diversification.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.30%
  • Weighted yield (per year) 1.23%

The portfolio's overall dividend yield is 1.23%, with the Vanguard Total International Stock Index Fund ETF contributing the highest yield at 3.3%. Dividends provide a steady income stream and can be an essential component for portfolios focused on income generation. However, this portfolio's yield is relatively modest, suggesting a primary focus on growth rather than income. If income is a priority, consider adding higher-yielding assets or funds that focus on dividend-paying stocks to increase the portfolio's income potential.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • 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) 0.07%

The portfolio's total expense ratio (TER) is impressively low at 0.07%, with most ETFs having minimal fees. Low costs are a significant advantage, as they can enhance long-term returns by reducing the drag on performance. Compared to many actively managed funds, this cost structure is highly efficient, allowing more of the investment returns to compound over time. Maintaining this low-cost approach is beneficial, but it's essential to regularly review and ensure that the cost savings do not compromise diversification or risk management goals.

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