A balanced portfolio with strong US focus and potential for growth but low diversification

Report created on Feb 28, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily weighted towards the Vanguard Total Stock Market Index Fund ETF Shares, comprising 78.64% of the holdings. This concentration in a single ETF limits diversification, although it provides broad exposure to the US stock market. The remainder is split among three other ETFs, with the Vanguard Dividend Appreciation Index Fund ETF Shares at 16.33%, SPDR® Portfolio S&P 500 ETF at 2.79%, and iShares Core S&P Small-Cap ETF at 2.25%. Compared to a typical balanced benchmark, this composition leans heavily towards equities, lacking in asset class diversity. To enhance diversification, consider incorporating fixed income or alternative investments.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 12.94%. This impressive growth is slightly above the average market returns, showcasing the portfolio's strength in capturing market upswings. However, it also experienced a significant maximum drawdown of -34.54%, indicating vulnerability during market downturns. While past performance is encouraging, it's crucial to remember that it does not guarantee future results. Diversifying asset classes could help mitigate future drawdowns.

Projection Info

Using Monte Carlo simulations, the portfolio's future performance shows potential with a median expected return of 359.9% and a positive return in 986 out of 1,000 simulations. This method uses historical data to simulate a range of possible outcomes, showing both optimistic and pessimistic scenarios. While it provides insight into potential performance, it cannot predict exact future results. To enhance future projections, consider reducing correlations and increasing diversification to buffer against market volatility.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely composed of stocks, with no allocation to bonds or other asset classes. This singular focus on equities can lead to higher volatility and risk, especially during market downturns. Compared to diversified benchmarks, which include a mix of equities, bonds, and other assets, this portfolio lacks balance. To reduce risk and enhance stability, consider adding fixed income or alternative investments. This would provide a buffer against market fluctuations and potentially improve risk-adjusted returns.

Sectors Info

  • Technology
    31%
  • Financials
    15%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Real Estate
    2%
  • Utilities
    2%
  • Basic Materials
    2%

The portfolio has a notable concentration in the technology sector, comprising 31% of the holdings. While technology stocks have driven growth in recent years, this concentration can lead to increased volatility, especially during periods of regulatory scrutiny or interest rate hikes. Other sectors, such as financial services and healthcare, provide some diversification but are underrepresented compared to common benchmarks. To mitigate sector-specific risks, consider rebalancing to achieve a more even distribution across sectors.

Regions Info

  • North America
    100%

With a 100% allocation to North American equities, the portfolio lacks geographic diversification. This concentration exposes the portfolio to regional economic and political risks, potentially limiting growth opportunities available in other regions. Common benchmarks typically include a mix of global equities to spread risk and capture growth across different markets. To enhance geographic diversification, consider adding international equities, which can provide exposure to emerging and developed markets outside North America.

Market capitalization Info

  • Mega-cap
    39%
  • Large-cap
    32%
  • Mid-cap
    18%
  • Small-cap
    7%
  • Micro-cap
    3%

The portfolio is diversified across different market capitalizations, with a significant focus on mega (39%) and big (32%) companies. This allocation provides stability, as larger companies tend to be less volatile. However, the exposure to medium (18%), small (7%), and micro (3%) caps is limited. Smaller companies can offer higher growth potential but come with increased risk. To balance stability and growth, consider adjusting the allocation to include more mid-cap and small-cap stocks, potentially enhancing returns.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    SPDR® Portfolio S&P 500 ETF
    Vanguard Dividend Appreciation Index Fund ETF Shares
    High correlation

The portfolio's assets are highly correlated, particularly among the Vanguard Total Stock Market Index Fund ETF Shares, SPDR® Portfolio S&P 500 ETF, and Vanguard Dividend Appreciation Index Fund ETF Shares. High correlation means these assets tend to move in the same direction, limiting diversification benefits. During market downturns, this can lead to increased risk and potential losses. To improve diversification, consider adding assets with lower correlations, such as international equities or alternative investments, which can provide a hedge against market volatility.

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 could be optimized by adjusting the asset allocation to achieve a more efficient risk-return ratio. The Efficient Frontier suggests that a portfolio with the same risk level could have a higher expected return of 13.32%. This optimization focuses on the current assets and reallocating among them to improve performance. While the potential return is higher, it's crucial to balance this with the investor's risk tolerance and goals. Consider reducing asset overlaps and diversifying to enhance efficiency.

Dividends Info

  • iShares Core S&P Small-Cap ETF 2.10%
  • SPDR® Portfolio S&P 500 ETF 1.30%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.38%

The portfolio's dividend yield is 1.38%, with contributions from all ETFs, notably the iShares Core S&P Small-Cap ETF at 2.10%. While dividends provide a steady income stream, this yield is relatively modest compared to income-focused portfolios. For investors seeking income, this portfolio may not be ideal. To increase dividend income, consider reallocating towards higher-yielding equities or dividend-focused funds. However, ensure that any changes align with overall investment goals and risk tolerance.

Ongoing product costs Info

  • iShares Core S&P Small-Cap ETF 0.06%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is impressively low at 0.04%, which is beneficial for long-term returns. Low costs mean more of the portfolio's gains are retained, enhancing compounding over time. This aligns well with best practices for cost-efficient investing. While the current costs are favorable, it's essential to monitor any changes in expense ratios over time. Maintaining low costs should remain a priority to support the portfolio's performance and growth.

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