Balanced Portfolio with Strong US Focus and Growth Tilt Offers Moderate Diversification and Solid Historical Performance

Report created on Aug 7, 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 six Vanguard ETFs, each with a specific focus, making up a moderately diversified investment. With a 25% allocation in both the Vanguard Russell 1000 Growth Index Fund and the Vanguard S&P 500 ETF, the portfolio leans heavily towards large-cap US equities. Additionally, it includes dividend-focused funds and mega-cap growth and index funds. This composition reflects a balanced risk profile, suitable for investors seeking moderate growth with some dividend income. To enhance diversification, consider including different asset classes or geographic regions, which could help mitigate risk during market downturns.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 15.93%, indicating robust past performance. However, it also experienced a maximum drawdown of -32.17%, highlighting the potential for significant losses during market corrections. The fact that 90% of returns were achieved in just 34 days suggests high volatility and concentration risk. Investors should be aware that while past performance is impressive, it does not guarantee future results. Diversifying further could help reduce volatility and protect against steep declines, ensuring more consistent returns over time.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected, assuming a hypothetical initial investment. The simulation predicts a wide range of possible outcomes, with a 5th percentile return of 160.87% and a 67th percentile of 956.8%. The median outcome is an impressive 689.03% return, with 999 simulations showing positive returns. This suggests a high probability of favorable outcomes, but investors should remain cautious of potential risks. To improve the likelihood of achieving desired results, consider rebalancing the portfolio periodically to maintain the intended risk profile and diversification.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly concentrated in stocks, with a 99.85% allocation, leaving only a minimal 0.15% in cash. This heavy equity focus aligns with growth-oriented strategies but may expose investors to higher volatility. By incorporating other asset classes, such as bonds or real estate, the portfolio could achieve better risk-adjusted returns. Diversifying across asset classes can provide a buffer during market downturns and help maintain a steady income stream. Investors should evaluate their risk tolerance and long-term goals to determine the appropriate balance between equities and other asset classes.

Sectors Info

  • Technology
    36%
  • Financials
    12%
  • Health Care
    12%
  • Consumer Discretionary
    10%
  • Telecommunications
    8%
  • Industrials
    8%
  • Consumer Staples
    7%
  • Basic Materials
    2%
  • Energy
    2%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio's sector allocation is dominated by technology, making up 35.77% of the total. Other significant sectors include financial services, healthcare, and consumer cyclicals. While this concentration in technology has likely contributed to strong past performance, it also increases sector-specific risk. A downturn in the tech sector could negatively impact overall returns. To mitigate this risk, consider reallocating some investments to underrepresented sectors, such as utilities or real estate, which often offer stability and consistent dividends. Balancing sector exposure can help reduce volatility and enhance long-term performance.

Regions Info

  • North America
    87%
  • Europe Developed
    7%
  • Japan
    4%
  • Asia Emerging
    1%

Geographically, the portfolio is heavily weighted towards North America, accounting for 86.59% of the allocation. This focus on the US market may limit exposure to global growth opportunities and increase vulnerability to domestic economic fluctuations. While the portfolio does include some international exposure, particularly in Europe and Japan, further diversification across emerging markets and other regions could enhance growth potential and reduce risk. Investing globally can help capture opportunities in diverse economies and industries, providing a more balanced and resilient portfolio.

Redundant positions Info

  • Vanguard Mega Cap Growth Index Fund ETF Shares
    Vanguard Mega Cap Index Fund ETF Shares
    Vanguard Dividend Appreciation Index Fund ETF Shares
    Vanguard Russell 1000 Growth Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlations among its assets, particularly within US large-cap and growth-focused ETFs. This correlation suggests that the portfolio may not be as diversified as it appears, as these assets tend to move in tandem during market fluctuations. High correlation can amplify risk and limit the benefits of diversification. To address this, consider reducing the number of overlapping assets and introducing investments with lower correlations. This approach can help achieve true diversification, spreading risk across different asset classes and regions, and potentially improving overall portfolio performance.

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.

Portfolio optimization involves aligning investments with the efficient frontier, which represents the best risk-return trade-off. This portfolio, while balanced, could be optimized by addressing the high correlation among assets and enhancing diversification. By reducing overlapping investments and adding uncorrelated assets, the portfolio could achieve better risk-adjusted returns. Exploring different asset classes and geographic regions may help reach the efficient frontier, offering a more optimal balance between risk and reward. Continuous evaluation and adjustment of the portfolio can ensure it remains aligned with the investor's goals and risk tolerance.

Dividends Info

  • Vanguard Mega Cap Index Fund ETF Shares 1.20%
  • Vanguard Mega Cap Growth Index Fund ETF Shares 0.40%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard International Dividend Appreciation Index Fund ETF Shares 2.00%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.16%

The portfolio's dividend yield stands at 1.16%, with contributions from various ETFs, including the Vanguard Dividend Appreciation and International Dividend Appreciation funds. This yield provides a modest income stream, which can be attractive to investors seeking regular cash flow. However, the focus on growth-oriented and large-cap stocks may limit overall yield potential. To enhance income, consider reallocating a portion of the portfolio to higher-yielding investments, such as bonds or dividend-focused stocks. Balancing growth and income-generating assets can help achieve a more consistent and reliable return.

Ongoing product costs Info

  • Vanguard Mega Cap Index Fund ETF Shares 0.07%
  • Vanguard Mega Cap Growth Index Fund ETF Shares 0.07%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard International Dividend Appreciation Index Fund ETF Shares 0.15%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio (TER) is a low 0.07%, reflecting the cost-efficient nature of Vanguard ETFs. This low cost structure is advantageous for long-term investors, as it minimizes the impact of fees on overall returns. Keeping investment costs low is essential for maximizing net gains and achieving financial goals. Investors should continue to monitor expense ratios and seek opportunities to further reduce costs, such as by selecting no-load funds or commission-free trading platforms. Maintaining a focus on cost efficiency can significantly enhance long-term portfolio performance.

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