A balanced cautious portfolio with a focus on US equities and a moderate risk profile

Report created on Jan 2, 2025

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio is primarily composed of ETFs, with a significant 46.4% allocation to the Vanguard S&P 500 ETF. This indicates a strong focus on large-cap U.S. equities. The presence of both bonds and cash, comprising 19.62% and 8.4% respectively, suggests a cautious approach, providing a buffer against market volatility. Compared to typical cautious portfolios, this one leans more heavily towards equities, which may offer higher growth potential but with increased risk. Consider balancing the equity exposure with more fixed-income assets if seeking to further reduce risk.

Growth Info

The portfolio's historical performance shows a robust Compound Annual Growth Rate (CAGR) of 13.12%, indicating strong past returns. However, it also experienced a maximum drawdown of -21.12%, reflecting potential volatility during market downturns. This performance exceeds typical benchmarks for cautious portfolios, suggesting effective growth strategies. While historical performance is encouraging, it's important to remember that past success doesn't guarantee future results. Regularly reviewing and adjusting the portfolio can help manage risk and maintain desired performance levels.

Projection Info

Using Monte Carlo simulations, the portfolio's future performance shows varied outcomes, with a 50th percentile return of 1,451.1% and a potential downside of 137.23% at the 5th percentile. Monte Carlo simulations use historical data to predict future possibilities, offering a range of potential outcomes. While the projections are promising, they rely on past data and assumptions. Regularly revisiting these projections is crucial to ensure alignment with changing market conditions and personal investment goals.

Asset classes Info

  • Stocks
    69%
  • Cash
    20%
  • Bonds
    11%

The portfolio is diversified across three main asset classes: stocks (69.14%), bonds (10.86%), and cash (19.99%). This allocation leans heavily towards equities, which can drive growth but also increase volatility. The bond and cash components provide stability and income, aligning with a cautious risk profile. Compared to typical benchmarks, the equity allocation is higher, which may not suit all cautious investors. To enhance stability, consider increasing bond exposure or exploring alternative asset classes that offer lower volatility.

Sectors Info

  • Technology
    21%
  • Financials
    12%
  • Consumer Discretionary
    8%
  • Health Care
    6%
  • Industrials
    6%
  • Telecommunications
    5%
  • Consumer Staples
    4%
  • Energy
    3%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

The portfolio is notably concentrated in technology (20.56%) and financial services (11.72%), with other sectors like consumer cyclicals and healthcare also represented. This sector allocation reflects a growth-oriented strategy, as tech and financials often drive market performance. However, tech-heavy portfolios can be volatile, particularly during economic shifts or interest rate changes. Balancing sector exposure by increasing allocation to defensive sectors like utilities or consumer staples could reduce risk and enhance diversification.

Regions Info

  • North America
    60%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    1%
  • Asia Developed
    1%

Geographically, the portfolio is heavily weighted towards North America (60.14%), with limited exposure to other regions. This concentration can limit diversification benefits and expose the portfolio to regional economic risks. While North American markets have historically performed well, expanding geographic exposure could offer growth opportunities and reduce risk. Consider increasing allocations to underrepresented regions like Europe or Asia to achieve a more balanced global footprint.

Redundant positions Info

  • Vanguard Total Bond Market Index Fund ETF Shares
    Vanguard Intermediate-Term Treasury Index Fund ETF Shares
    High correlation

The portfolio includes highly correlated assets, particularly within the bond ETFs. When assets move together, they may not provide the diversification benefits expected during market downturns. Reducing correlation by selecting assets with different market behaviors can enhance risk management. Consider replacing some correlated bond holdings with alternatives that have historically low correlations to the rest of the portfolio.

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 further using the Efficient Frontier, which seeks the best risk-return balance. Currently, the optimal portfolio suggests a higher expected return with a similar risk level. This indicates potential for improvement by adjusting current asset allocations. Focus on reducing overlapping, highly correlated assets first to achieve better diversification. Regularly review the portfolio's efficiency to ensure it meets evolving risk and return preferences.

Dividends Info

  • Apple Inc 0.40%
  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Vanguard Total Bond Market Index Fund ETF Shares 3.70%
  • Microsoft Corporation 0.70%
  • iShares® 0-3 Month Treasury Bond ETF 5.10%
  • Vanguard Intermediate-Term Treasury Index Fund ETF Shares 3.30%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Extended Market Index Fund ETF Shares 1.10%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 2.41%

The portfolio's dividend yield stands at 2.41%, contributing to overall returns and providing a steady income stream. High-yielding assets like the iShares 0-3 Month Treasury Bond ETF and Vanguard Total Bond Market Index Fund ETF Shares bolster this yield. Dividends can be particularly valuable for cautious investors seeking income stability. Ensure that dividend-focused investments align with long-term goals and consider reinvesting dividends to compound growth over time.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • iShares® 0-3 Month Treasury Bond ETF 0.07%
  • Vanguard Intermediate-Term Treasury Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Extended Market Index Fund ETF Shares 0.06%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

With a Total Expense Ratio (TER) of 0.06%, the portfolio is cost-effective, minimizing the impact of fees on long-term returns. Low costs are crucial for enhancing net returns, especially in a cautious portfolio where growth may be slower. This cost efficiency aligns well with best practices, supporting better performance over time. Continue monitoring for opportunities to reduce costs further, such as through lower-fee funds or direct stock investments.

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