Balanced portfolio with broad diversification and low cost ETFs for moderate risk investors

Report created on Jan 7, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio consists of three ETFs, with a strong emphasis on international and domestic equities. The Vanguard Total International Stock Index Fund ETF makes up 50%, the Vanguard Total Stock Market Index Fund ETF comprises 40%, and the Vanguard S&P 500 ETF accounts for 10%. This composition leans heavily towards equities, which can offer growth potential but also comes with higher volatility. Compared to a typical balanced portfolio, which might include bonds or other fixed income assets, this portfolio is more growth-oriented. Consider adding bonds or other asset classes to improve stability and reduce overall risk.

Growth Info

Historically, the portfolio has delivered a commendable CAGR of 10.3%, indicating solid growth over time. However, it experienced a maximum drawdown of -34.3%, highlighting potential volatility. Compared to benchmarks, this performance aligns with typical equity-heavy portfolios, which tend to offer higher returns at the cost of increased risk. While past performance is not indicative of future results, it provides a useful reference point for assessing risk tolerance. If you are concerned about volatility, consider strategies to mitigate drawdowns, such as diversifying into less correlated assets.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes. With a median return of 318.38% and a 5th percentile at 37.6%, the portfolio shows a strong probability of positive returns, with 978 out of 1,000 simulations ending positively. Monte Carlo simulations use historical data to project future scenarios, but they do not guarantee outcomes. The range of projections underscores the importance of considering both best-case and worst-case scenarios. It might be prudent to regularly review the portfolio to ensure alignment with your risk tolerance and financial goals.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is overwhelmingly allocated to stocks, with 98.9% of assets in equities and a negligible amount in cash and other asset classes. This heavy equity allocation can drive growth but also increases exposure to market fluctuations. Compared to a more diversified portfolio, which might include bonds or real estate, this allocation is less balanced. Consider diversifying into other asset classes to enhance stability and potentially smooth out returns over time, especially if market conditions become volatile.

Sectors Info

  • Technology
    22%
  • Financials
    17%
  • Industrials
    12%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Basic Materials
    5%
  • Energy
    4%
  • Real Estate
    3%
  • Utilities
    3%

Sector allocation shows a significant concentration in technology (22.18%), followed by financial services (17.17%) and industrials (11.84%). This composition is well-aligned with benchmark norms, providing a diversified exposure across key sectors. However, tech-heavy portfolios may experience higher volatility during economic shifts, such as interest rate hikes. Maintaining a balanced sector allocation is crucial for managing risk. Regularly reassess sector weights to ensure they reflect your investment objectives and risk appetite, adjusting as necessary to avoid over-concentration.

Regions Info

  • North America
    54%
  • Europe Developed
    19%
  • Asia Emerging
    8%
  • Japan
    8%
  • Asia Developed
    5%
  • Australasia
    3%
  • Africa/Middle East
    2%
  • Latin America
    1%

The portfolio's geographic allocation is dominated by North America (53.77%), with substantial exposure to Europe Developed (19.33%) and Asia Emerging (8.21%). This distribution provides a broad international reach, aligning with global market benchmarks. However, there is limited exposure to regions like Latin America and Africa/Middle East, which could offer unique growth opportunities. Geographic diversification helps mitigate risks associated with regional economic downturns. Consider increasing exposure to underrepresented regions to enhance diversification and capitalize on potential growth in emerging markets.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly between the Vanguard Total Stock Market Index Fund ETF and the Vanguard S&P 500 ETF. High correlation means these assets tend to move together, which can limit diversification benefits during market downturns. Diversification aims to reduce risk by combining assets that behave differently under the same market conditions. To enhance diversification, consider replacing one of the highly correlated ETFs with an asset that offers distinct performance characteristics.

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.

Optimizing the portfolio using the Efficient Frontier may enhance the risk-return ratio by adjusting asset allocations. The Efficient Frontier represents the set of portfolios that offer the highest expected return for a given level of risk. However, it's crucial to first address the issue of overlapping assets, as this can skew optimization results. By focusing on diversification and reducing correlation, the portfolio can potentially achieve a more efficient risk-return balance. Consider consulting with a financial advisor to explore optimization strategies tailored to your financial goals.

Dividends Info

  • 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) 2.25%

The portfolio has a total dividend yield of 2.25%, with the Vanguard Total International Stock Index Fund ETF contributing the highest yield at 3.3%. Dividends provide a steady income stream, which can be particularly attractive during volatile market periods. This yield is competitive for an equity-focused portfolio, offering a mix of growth and income. Reinvesting dividends can boost long-term returns, while using them as income can provide cash flow. Evaluate your income needs and consider reinvesting dividends to maximize compounding benefits.

Ongoing product costs Info

  • 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) 0.06%

The portfolio benefits from low costs, with a total expense ratio (TER) of 0.06%. This is exceptionally low, especially for a diversified equity portfolio, and supports better long-term performance by minimizing the drag on returns. Low costs are a key advantage, allowing more of your investment to grow over time. It's important to periodically review expense ratios to ensure they remain competitive. Staying vigilant about costs can help maintain the portfolio's cost-efficiency and enhance overall returns.

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