Balanced Risk Portfolio with Strong Diversification and Promising Growth Potential for U.S. Investors

Report created on Jul 6, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is composed of four ETFs, with a significant focus on U.S. equities. The Vanguard Total Stock Market Index Fund ETF Shares holds the largest share at 40%, offering broad exposure to the U.S. stock market. The Schwab U.S. Large-Cap Growth ETF and Schwab U.S. Dividend Equity ETF add growth and income potential, respectively, making up 45% of the portfolio. Lastly, the Vanguard Total International Stock Index Fund ETF Shares provides international diversification with a 15% allocation. This composition suggests a balanced approach, combining growth with some income and international exposure.

Growth Info

Historically, this portfolio has shown impressive performance, with a compound annual growth rate (CAGR) of 13.43%. However, it also experienced a maximum drawdown of -33.61%, indicating vulnerability during market downturns. The fact that 90% of returns were concentrated in just 33 days highlights the importance of staying invested through market volatility. This historical performance suggests that while the portfolio has delivered strong returns, it may require a robust risk management strategy to handle potential downturns effectively.

Projection Info

Using a Monte-Carlo simulation with 1,000 iterations, we assumed a hypothetical initial investment to project future performance. The simulation shows a wide range of outcomes, with the 5th percentile at 60.57% and the 67th percentile at 540.61%. The median outcome stands at 380.99%, suggesting potential for significant growth. Importantly, 995 out of 1,000 simulations resulted in positive returns, indicating a high probability of achieving gains. This simulation underscores the portfolio's potential, but investors should be mindful of the inherent uncertainties in projections.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.66% allocated to equities. This high exposure to stocks suggests a focus on capital appreciation, but it also increases the portfolio's sensitivity to market fluctuations. The minimal allocation to cash and other asset classes indicates a more aggressive stance. While this can lead to higher returns, it also means increased risk. To manage risk, consider diversifying into bonds or other asset classes to provide a buffer against stock market volatility.

Sectors Info

  • Technology
    28%
  • Financials
    14%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    5%
  • Basic Materials
    3%
  • Real Estate
    2%
  • Utilities
    2%

Sector allocation is diverse, with a notable emphasis on technology at 28.46%, followed by financial services and healthcare. This distribution showcases a tilt towards sectors with growth potential. However, the concentration in technology could expose the portfolio to sector-specific risks. Balancing sector weights could help mitigate this risk and enhance stability. Consider reviewing the portfolio's sector allocation periodically to ensure it aligns with your risk tolerance and market outlook.

Regions Info

  • North America
    86%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for 85.80%. While this reflects a home-country bias, it also limits exposure to international markets. The remaining allocation is spread across developed Europe, emerging Asia, and other regions, providing some diversification. Expanding exposure to international markets could enhance diversification and reduce dependence on the U.S. economy. This geographic composition suggests a need for a more global perspective to capture growth opportunities worldwide.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation between the Schwab U.S. Large-Cap Growth ETF and the Vanguard Total Stock Market Index Fund ETF Shares. This correlation implies that these assets tend to move in the same direction, which might reduce diversification benefits. To enhance diversification, consider reducing overlap by incorporating assets with lower correlation. This approach can help manage risk and improve the portfolio's resilience to market fluctuations. Regularly reviewing asset correlations can aid in maintaining a well-diversified portfolio.

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, it's essential to address the high correlation between certain assets, which may not offer diversification benefits. By reducing overlap, the portfolio can become more efficient. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. For risk-averse investors, increasing bond allocation can offer stability, while those seeking higher returns might consider more equities. Once the correlation issue is resolved, further optimization can focus on aligning the portfolio with individual risk preferences and goals.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 1.68%

The portfolio's dividend yield stands at 1.68%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.3%. This yield provides a steady income stream, balancing the growth-oriented focus of the other ETFs. While dividends can offer stability, they are not the primary driver of returns in this portfolio. Investors seeking higher income may need to adjust the allocation towards dividend-focused assets. Monitoring dividend yields and reinvesting them can further enhance returns and support long-term growth objectives.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • 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%

Portfolio costs are relatively low, with a total expense ratio (TER) of 0.05%. This low-cost structure is advantageous, as it minimizes the drag on returns. Each ETF in the portfolio has a competitive expense ratio, ranging from 0.03% to 0.08%. Keeping costs low is crucial for maximizing net returns over time. Continuously monitoring and comparing expense ratios can help ensure that the portfolio remains cost-efficient. Consider reevaluating the portfolio periodically to maintain an optimal balance between costs and performance.

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