Balanced Portfolio with Strong Diversification and Moderate Risk, Suitable for Steady Growth and Income

Report created on Jul 21, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

This portfolio is a mix of four Vanguard ETFs, with a major focus on stocks and a small allocation to bonds. The Vanguard Total Stock Market Index Fund ETF Shares takes up the lion's share at 65%, followed by the Vanguard Total International Stock Index Fund ETF Shares at 20%. The Vanguard High Dividend Yield Index Fund ETF Shares adds a touch of income focus with 10%, while the Vanguard Total Bond Market Index Fund ETF Shares provides a conservative element at 5%. This composition reflects a balanced approach, aiming for growth with some income and risk mitigation.

Growth Info

Historically, this portfolio has delivered a commendable Compound Annual Growth Rate (CAGR) of 11.28%, which is quite impressive. However, it has also experienced a maximum drawdown of -33.48%, indicating potential vulnerability during market downturns. This performance suggests that while the portfolio has been able to generate substantial returns, it may also expose investors to significant volatility. With 29 days making up 90% of returns, the portfolio's performance is concentrated, emphasizing the importance of staying invested during volatile periods to capture gains.

Projection Info

Using a Monte Carlo simulation, which runs numerous hypothetical scenarios to predict future performance, this portfolio shows promising outcomes. With an assumed initial investment, the simulation indicates a median return of 175% and an annualized return of 8.35%. Notably, 950 out of 1,000 simulations resulted in positive returns. This suggests that the portfolio has a strong probability of achieving solid future growth, though it's important to be prepared for a range of outcomes, as indicated by the 5th percentile return of 1.05%.

Asset classes Info

  • Stocks
    95%
  • Bonds
    5%

The portfolio is heavily weighted towards stocks, comprising 94.54% of the allocation, with a minor portion in bonds at 4.94%. Cash and other assets make up the remaining fractions. This asset class distribution is typical for a balanced profile, aiming to capture equity growth while maintaining a small bond allocation for stability. Given the current composition, it might be beneficial to periodically review and adjust the stock-to-bond ratio to ensure it aligns with long-term investment goals and risk tolerance.

Sectors Info

  • Technology
    24%
  • Financials
    15%
  • Health Care
    11%
  • Industrials
    10%
  • Consumer Discretionary
    10%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    3%

The sector allocation is diverse, with technology leading at 23.85%, followed by financial services and healthcare. This sector spread indicates a broad exposure across various industries, which can help mitigate sector-specific risks. However, the significant allocation to technology may introduce volatility, given its historically high beta. It's advisable to monitor sector performance and consider rebalancing if any sector becomes disproportionately large, ensuring the portfolio remains aligned with the desired risk profile.

Regions Info

  • North America
    76%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for 76.08% of the allocation. Europe Developed follows, with smaller allocations in Asia Emerging, Japan, and other regions. This geographic concentration in North America reflects a home bias, which is common among U.S. investors. While this can capitalize on the strong performance of U.S. markets, it may also limit exposure to growth opportunities in other regions. Diversifying further geographically could enhance growth potential and reduce regional risk.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard High Dividend Yield Index Fund ETF Shares
    High correlation

There is a notable correlation between the Vanguard Total Stock Market Index Fund ETF Shares and the Vanguard High Dividend Yield Index Fund ETF Shares, suggesting that these assets tend to move together. While this can amplify gains during market upswings, it also increases risk during downturns. To optimize diversification, it might be wise to explore other assets that don't closely track each other, thereby reducing overall portfolio volatility and enhancing risk-adjusted returns.

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 considering optimization, it's advisable to address the overlap of highly correlated assets that don't enhance diversification. Once this is streamlined, the portfolio can be adjusted along the efficient frontier to achieve desired risk levels. Moving towards a riskier allocation involves increasing equity exposure, while a more conservative stance would involve adding bonds. This strategic adjustment can help align the portfolio with specific financial goals and risk preferences, ensuring it remains dynamic and responsive to market changes.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.70%
  • Weighted yield (per year) 1.90%

The portfolio offers a moderate dividend yield of 1.9%, with contributions from all ETF positions. The Vanguard Total Bond Market Index Fund ETF Shares provides the highest yield at 3.6%, adding a steady income stream. While dividends can be a reliable source of income, the portfolio's yield is relatively modest. For investors seeking higher income, it may be worth exploring additional dividend-focused investments or increasing the allocation to existing high-yield positions, balancing this with overall growth objectives.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.04%

The portfolio's costs are impressively low, with a Total Expense Ratio (TER) of 0.04%. This is largely due to the inclusion of Vanguard ETFs, known for their cost-efficiency. Low costs are crucial for maximizing net returns over time, as high fees can erode gains. Maintaining this cost-effective structure is advantageous, and it's essential to keep an eye on any changes in expense ratios. Consideration of cost-efficiency should remain a priority when evaluating potential portfolio adjustments or additions.

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