Balanced Moderate-Risk Portfolio with Strong Historical Performance and Room for Diversification Improvements

Report created on Dec 5, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of four ETFs, with a significant emphasis on the Vanguard Growth Index Fund and Vanguard Total Stock Market Index Fund, each making up around 26% of the portfolio. It also includes Schwab U.S. Dividend Equity ETF and Schwab International Equity ETF. This composition suggests a focus on growth and dividend income. The portfolio is moderately diversified, with a risk score of 4 out of 7. This means it maintains a balance between risk and potential return. Consider evaluating the weightings to ensure alignment with investment goals.

Growth Info

Historically, the portfolio has performed well, achieving a compound annual growth rate (CAGR) of 13.05%. However, it has experienced a maximum drawdown of -33.16%, indicating vulnerability during market downturns. This performance suggests that while the portfolio has the potential for strong returns, it also carries significant risk during volatile periods. It's crucial to assess whether this level of volatility aligns with your long-term investment strategy. If the drawdown is a concern, consider strategies to mitigate risk, such as diversifying into more conservative assets.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future projections show a wide range of potential outcomes. The simulation suggests a 5th percentile return of 54.32% and a 67th percentile return of 552.93%, with an annualized return of 13.47%. The high number of simulations with positive returns indicates a favorable outlook. This tool helps understand the range of possible outcomes and the associated probabilities. To align with personal risk tolerance, evaluate the portfolio's risk-reward balance and consider adjustments if necessary.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, making up almost 100% of the allocation, with minimal exposure to cash, bonds, and other assets. This concentration in equities suggests a focus on capital appreciation but also exposes the portfolio to market volatility. Diversifying into other asset classes could help reduce risk and provide more stability. Consider incorporating bonds or other income-generating assets to achieve a more balanced asset allocation, which can enhance the portfolio's resilience during market downturns.

Sectors Info

  • Technology
    26%
  • Financials
    15%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    7%
  • Energy
    5%
  • Basic Materials
    3%
  • Real Estate
    2%
  • Utilities
    1%

The sector allocation is diverse, with a strong emphasis on technology, financial services, and consumer cyclicals. Technology comprises the largest portion, reflecting a growth-oriented strategy. While this sector focus can drive returns, it also increases exposure to sector-specific risks. Ensuring a balanced sector allocation can help mitigate these risks and enhance diversification. Regularly review sector weights and adjust them to maintain a diversified approach that aligns with long-term investment objectives.

Regions Info

  • North America
    81%
  • Europe Developed
    11%
  • Japan
    5%
  • Australasia
    1%
  • Asia Developed
    1%

Geographically, the portfolio is predominantly focused on North America, which makes up over 80% of the allocation. This concentration provides exposure to a stable and mature market but limits diversification benefits from other regions. Introducing more international exposure could provide growth opportunities and reduce geographic risk. Consider evaluating the geographic distribution to ensure it aligns with global market trends and your investment strategy. Diversifying geographically can help capture growth in emerging markets and balance the portfolio's risk profile.

Redundant positions Info

  • Vanguard Growth Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The Vanguard Growth Index Fund and Vanguard Total Stock Market Index Fund are highly correlated, indicating they move similarly in response to market changes. This correlation suggests limited diversification benefits between these two positions. While both funds are strong performers, consider reducing overlap to enhance diversification. Introducing assets with lower correlation can help smooth portfolio volatility and improve risk-adjusted returns. Regularly assess correlations to ensure the portfolio remains diversified and aligned with investment goals.

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, address the high correlation between certain assets, which limits diversification benefits. By reducing overlap, the portfolio can achieve better risk-adjusted returns. Moving along the efficient frontier, one can adjust the portfolio to be riskier or more conservative, depending on risk tolerance and financial goals. For a riskier portfolio, increase exposure to high-growth assets. For a more conservative approach, introduce more bonds or income-generating assets. Focus on enhancing diversification to optimize the portfolio's performance over time.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab International Equity ETF 4.50%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 2.28%

The portfolio has a moderate total dividend yield of 2.28%, with the Schwab U.S. Dividend Equity ETF and Schwab International Equity ETF contributing the most. This yield can provide a steady income stream, which is beneficial for income-focused investors. However, relying solely on dividends may limit capital appreciation potential. Consider balancing dividend income with growth opportunities to achieve a well-rounded portfolio. Regularly review dividend yields and adjust allocations to ensure they meet income needs while supporting overall investment objectives.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab International Equity ETF 0.06%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio is 0.05%, which is quite low and indicates cost-efficiency. Lower costs can significantly impact long-term returns, as they reduce the drag on performance. This cost structure supports the portfolio's potential to achieve its investment goals without excessive fees. Continue to monitor expense ratios to ensure they remain competitive. Consider exploring other low-cost investment options if necessary to maintain cost efficiency. Keeping investment costs low is a key strategy for maximizing returns over time.

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