Balanced Portfolio with Strong US Equity Focus and Minimal Diversification Across Asset Classes and Geographies

Report created on Nov 22, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is heavily weighted towards equities, with an overwhelming 96.77% in stocks and a minor 2.97% in bonds. This composition reflects a strong preference for growth-oriented investments, with the Vanguard S&P 500 ETF alone making up 70% of the portfolio. The remaining equity positions include small-cap, mid-cap, and information technology-focused ETFs. This setup indicates a single-focused diversification strategy, primarily targeting large-cap US equities. While this approach can yield significant returns, it also exposes the portfolio to higher market volatility, especially given the minimal allocation to bonds.

Growth Info

Historically, the portfolio has shown impressive performance, with a compound annual growth rate (CAGR) of 13.97%. This suggests that a hypothetical initial investment would have grown substantially over time. However, the portfolio's maximum drawdown of -34.05% highlights its vulnerability during market downturns. With 33 days making up 90% of the returns, it indicates that a few key days significantly impact overall performance. This performance history underscores the portfolio's potential for strong gains, albeit with considerable volatility, which may not suit all investors' risk appetites.

Projection Info

Using a Monte Carlo simulation, which runs numerous hypothetical scenarios to predict future performance, the portfolio shows promising potential. Assuming an initial investment, the median outcome suggests a 348.73% return, with a 67th percentile projection of 517.42%. Notably, 981 out of 1,000 simulations resulted in positive returns, reflecting a robust probability of future gains. The annualized return across simulations is 12.85%, reinforcing the potential for growth. However, it's crucial to remember that these projections are based on historical data and assumptions, and actual future performance may vary.

Asset classes Info

  • Stocks
    97%
  • Bonds
    3%

The portfolio's asset class allocation is heavily skewed towards stocks, with a minimal 3% in bonds and a negligible cash position. This strong equity focus aligns with a growth-oriented investment strategy, targeting capital appreciation over income generation. While this approach can yield high returns during bullish markets, it also increases exposure to market volatility and potential losses during downturns. To balance risk and return, it might be wise to consider increasing the allocation to bonds or other asset classes, providing more diversification and stability to the portfolio.

Sectors Info

  • Technology
    36%
  • Financials
    11%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    3%
  • Utilities
    3%
  • Basic Materials
    2%

Sector allocation reveals a significant concentration in technology, making up 35.9% of the portfolio. Other notable sectors include financial services, healthcare, and consumer cyclicals. This sector concentration indicates a potential vulnerability to sector-specific downturns, especially in technology. While these sectors have historically driven growth, diversifying into underrepresented sectors could mitigate risk and enhance stability. By spreading investments across a broader range of sectors, the portfolio can better withstand sector-specific volatility and capitalize on diverse market opportunities.

Regions Info

  • North America
    96%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, accounting for 96.3% of its assets. This heavy regional focus exposes the portfolio to risks associated with the US market, such as economic downturns or policy changes. While investing in familiar markets can be comforting, it may limit exposure to growth opportunities in emerging or international markets. To enhance diversification and reduce geographic risk, consider allocating a portion of the portfolio to international equities, potentially capturing growth in other regions.

Redundant positions Info

  • Vanguard Mid-Cap Index Fund ETF Shares
    Vanguard Small-Cap Index Fund ETF Shares
    Vanguard Information Technology Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlation among its equity holdings, particularly between the Vanguard Mid-Cap, Small-Cap, Information Technology, and S&P 500 ETFs. This correlation indicates that these assets tend to move in tandem, reducing the diversification benefits within the portfolio. While such alignment can amplify gains during market upswings, it also increases vulnerability during downturns. To optimize the portfolio, consider reducing exposure to overlapping assets and introducing investments with lower correlation, enhancing diversification and potentially smoothing 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.

The portfolio currently lacks optimal diversification, primarily due to its high correlation among equity holdings. To move towards the efficient frontier, which represents the optimal risk-return trade-off, it's essential to address these overlaps. By reducing exposure to highly correlated assets and incorporating investments with lower correlation, the portfolio can achieve better diversification. This strategy aims to enhance returns while minimizing risk, ultimately aligning the portfolio more closely with an efficient frontier model and improving overall performance.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.24%

The portfolio's overall dividend yield stands at 1.24%, with the Vanguard Total Bond Market Index Fund offering the highest yield at 3.6%. While the focus on growth stocks typically results in lower dividend income, dividends can provide a steady income stream and cushion against market volatility. For investors seeking regular income, increasing exposure to higher-yielding assets might be beneficial. However, this should be balanced with growth objectives, ensuring the portfolio continues to meet long-term capital appreciation goals while providing some income stability.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is impressively low at 0.04%, reflecting the cost-efficient nature of the Vanguard ETFs. This low-cost structure is beneficial, as it allows more of the portfolio's returns to be retained by the investor. Keeping investment costs low is a crucial strategy for long-term success, as high fees can significantly erode returns over time. To maintain this advantage, continue prioritizing cost-effective investment options and regularly review the portfolio for any changes in expense ratios that could impact overall performance.

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