A balanced portfolio with a strong focus on US equities and low costs

Report created on Feb 3, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is composed of two main ETFs: the Vanguard S&P 500 ETF at 80% and the Vanguard Total International Stock Index Fund ETF at 20%. This allocation emphasizes US large-cap stocks, aligning with the S&P 500's composition, while the international fund offers some global exposure. A benchmark comparison shows a strong domestic bias, which is common for US-based investors. The portfolio's structure supports broad diversification across sectors and geographies, although it leans heavily towards US equities, potentially limiting exposure to emerging markets.

Growth Info

Historically, the portfolio has delivered a Compound Annual Growth Rate (CAGR) of 12.67%, with a maximum drawdown of -33.88%. This indicates strong performance over time, albeit with significant volatility during downturns. Compared to benchmarks, this performance aligns well with typical S&P 500 returns, reflecting the portfolio's heavy US equity focus. However, past performance does not guarantee future results, and the portfolio's ability to weather future downturns will depend on market conditions and diversification strategies.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's projected annualized return is 10.79%. The simulation uses historical data to estimate future performance, highlighting potential outcomes like the 5th percentile at 17.8% and the 67th percentile at 379.5%. While these projections provide insights, they are not predictions. The simulation's reliance on historical data means it cannot account for future market disruptions or changes in economic conditions, so the results should be viewed as one of many possible scenarios.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, with 99% of assets in equities and a small 1% allocation to cash. This composition is typical for growth-oriented portfolios seeking higher returns. While the high equity exposure can drive growth, it also increases volatility, especially during market downturns. Diversifying into other asset classes, such as bonds or real estate, could potentially reduce risk and provide more balanced returns, though it may also lower the overall growth potential.

Sectors Info

  • Technology
    29%
  • Financials
    15%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

The sector allocation shows a strong emphasis on technology at 29%, followed by financial services at 15%. This concentration reflects the current market trend, where tech companies drive significant growth. However, tech-heavy portfolios can be more volatile, especially during interest rate changes. Balancing these allocations with more defensive sectors, such as utilities or consumer defensives, could mitigate risk. The portfolio's sector composition aligns closely with common benchmarks, indicating a solid diversification approach.

Regions Info

  • North America
    81%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

With 81% of the portfolio allocated to North American assets, there is a significant home bias. While this aligns with many US investors' preferences, it may limit exposure to growth opportunities in emerging markets. The remaining 19% provides some international diversification, primarily in developed markets like Europe and Japan. Increasing exposure to regions like Asia or Latin America could enhance diversification and capture growth in emerging economies, though it may introduce additional volatility.

Market capitalization Info

  • Mega-cap
    46%
  • Large-cap
    34%
  • Mid-cap
    18%
  • Small-cap
    1%

The portfolio's market capitalization is predominantly in mega-cap stocks at 46%, with big-cap stocks at 34% and medium-cap stocks at 18%. This skew towards larger companies aligns with the S&P 500's composition, offering stability and lower volatility compared to smaller companies. However, incorporating more small-cap stocks could increase growth potential and diversification benefits, as they often outperform larger stocks over the long term, albeit with higher risk.

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's current allocation can be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio based on existing assets. This involves adjusting the weightings between the two ETFs to achieve a more balanced risk profile. While the portfolio is already broadly diversified, fine-tuning the allocation could enhance efficiency without sacrificing diversification. This optimization process helps ensure the portfolio is well-positioned to achieve its investment goals while managing risk effectively.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.20%
  • Weighted yield (per year) 1.60%

The portfolio's overall dividend yield is 1.60%, with the Vanguard S&P 500 ETF yielding 1.20% and the international ETF yielding 3.20%. Dividends contribute to total returns and provide a steady income stream, which can be particularly attractive in volatile markets. For investors seeking income, focusing on higher-dividend-paying stocks or funds could enhance yield. However, prioritizing dividends may reduce growth potential, as high-dividend stocks often have lower capital appreciation prospects.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from impressively low costs, with a Total Expense Ratio (TER) of 0.04%. Low costs are crucial for long-term performance, as they minimize the drag on returns. This efficient cost structure aligns well with best practices, ensuring more of the portfolio's growth is retained by the investor. Maintaining this low-cost approach is advisable, as even small increases in fees can compound over time, significantly impacting the portfolio's overall returns.

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