A balanced and broadly diversified portfolio with a focus on U.S. equity and dividend yield

Report created on Jan 16, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio consists of four ETFs, each holding a 25% weight, providing a balanced mix of U.S. and international equities. The portfolio's structure aligns with a common balanced investment strategy, offering exposure to both domestic and global markets. Having an equal allocation across these funds helps in spreading risk and capturing growth opportunities in various markets. However, it may miss opportunities for further diversification across different asset classes such as bonds or real estate. Consider adding non-equity asset classes to enhance diversification and potentially reduce overall portfolio risk.

Growth Info

The portfolio demonstrates a robust historical performance with a CAGR of 11.62%, indicating strong growth potential. This performance surpasses many traditional benchmarks, reflecting effective asset selection and allocation. However, it also experienced a significant maximum drawdown of -33.93%, highlighting vulnerability during market downturns. While past performance is encouraging, it's essential to remember that it doesn't guarantee future results. To mitigate future risks, consider incorporating assets that historically perform well during market downturns, like bonds or defensive stocks.

Projection Info

Monte Carlo simulations project a range of potential future outcomes for this portfolio, using historical data to estimate returns. With an annualized return of 12.57% across simulations, the projections suggest promising growth. The 5th percentile shows a potential 56.6% return, while the median is 326.28%. However, these projections are based on historical patterns and do not account for unforeseen market changes. It's crucial to regularly review and adjust the portfolio to align with evolving market conditions and personal financial goals, ensuring it remains on track for desired outcomes.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, with 99.36% in equities, potentially increasing exposure to market volatility. This allocation offers growth opportunities but may lack the stability provided by bonds or other fixed-income assets. Comparatively, a typical balanced portfolio might have a more significant bond allocation to cushion against market downturns. To achieve a more balanced risk-return profile, consider incorporating bonds or other fixed-income securities, which can provide a counterbalance to the equity-heavy nature of the current portfolio.

Sectors Info

  • Technology
    22%
  • Financials
    17%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Industrials
    11%
  • Consumer Staples
    8%
  • Telecommunications
    7%
  • Energy
    6%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The sector allocation shows a strong emphasis on technology and financial services, comprising nearly 40% of the portfolio. This concentration reflects a common trend in equity markets but could lead to higher volatility, especially during sector-specific downturns. While technology often drives growth, it can be sensitive to interest rate changes. A more balanced sector approach could mitigate potential risks. Consider diversifying further into underrepresented sectors like utilities or real estate to enhance stability and reduce reliance on a few high-growth areas.

Regions Info

  • North America
    77%
  • Europe Developed
    10%
  • Asia Emerging
    4%
  • Japan
    4%
  • Asia Developed
    3%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

The portfolio's geographic allocation is predominantly North American at 76.6%, limiting exposure to global markets. While this is common for U.S.-centric portfolios, it may miss opportunities in faster-growing regions. Exposure to Europe, Asia, and emerging markets is present but minimal. A more geographically balanced portfolio can help mitigate risks associated with regional economic downturns. Consider increasing allocations to underrepresented regions with growth potential, such as emerging markets, to enhance diversification and capture broader economic opportunities.

Redundant positions Info

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

The portfolio includes 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 in tandem, potentially reducing diversification benefits. In times of market stress, this could lead to larger swings in portfolio value. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation to the rest of the portfolio, such as international equities or bonds, to better manage risk.

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 seeks the best possible risk-return ratio. However, the presence of highly correlated assets suggests limited diversification benefits. Before optimizing, consider reducing overlap by replacing correlated ETFs with diverse options. The Efficient Frontier can then help identify the optimal allocation of remaining assets to maximize returns for a given level of risk. Regular optimization ensures the portfolio adapts to changing market conditions and continues to meet investment goals effectively.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • 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 3.40%
  • Weighted yield (per year) 2.38%

With a total dividend yield of 2.38%, the portfolio provides a moderate income stream, primarily driven by the Schwab U.S. Dividend Equity ETF. Dividend income can be a reliable component of total returns, offering cash flow even in volatile markets. This yield aligns well with balanced portfolios seeking both income and growth. However, focusing solely on dividends could lead to missed opportunities in non-dividend-paying growth stocks. Consider maintaining a balance between dividend and growth-oriented investments to optimize both income and capital appreciation.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • 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) 0.05%

The portfolio's total expense ratio (TER) is impressively low at 0.05%, which is beneficial for long-term growth. Low costs mean more of your returns are retained, compounding over time. This cost efficiency aligns well with best practices for portfolio management, where minimizing fees can significantly impact net returns. While the current cost structure is commendable, it's always prudent to periodically review and compare costs with alternative options to ensure continued cost-effectiveness, especially as new low-cost products become available.

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