Balanced Portfolio with Strong Global Diversification and Overlapping Asset Classes in ETFs

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.

What type of investor this portfolio is suitable for

Balanced Investors

This portfolio suits a balanced investor who seeks moderate risk and broad diversification across global equities. Such an investor values growth but is mindful of volatility, aiming for a long-term investment horizon. They appreciate the benefits of low-cost ETFs and are comfortable with a predominantly equity-focused approach. This investor is likely focused on wealth accumulation and is willing to accept market fluctuations for potentially higher returns. They balance risk and reward, seeking a diversified strategy that aligns with their financial goals and risk tolerance.

Positions

  • Vanguard Total World Stock Index Fund ETF Shares
    VT - US9220427424
    46.00%
  • Vanguard S&P 500 ETF
    VOO - US9229083632
    18.00%
  • Vanguard Total Stock Market Index Fund ETF Shares
    VTI - US9229087690
    18.00%
  • Vanguard Total International Stock Index Fund ETF Shares
    VXUS - US9219097683
    18.00%

The portfolio is composed of four ETFs, with the Vanguard Total World Stock Index Fund ETF Shares holding the largest share at 46%. The remaining ETFs, including the Vanguard S&P 500 ETF, Vanguard Total Stock Market Index Fund ETF Shares, and Vanguard Total International Stock Index Fund ETF Shares, each hold 18%. This composition reflects a broadly diversified approach, focusing heavily on equities. Such a setup can offer exposure to global markets and different sectors, providing a comprehensive investment strategy. However, the high concentration in similar ETFs may lead to overlapping investments, which could limit diversification benefits.

Growth Info

Historically, the portfolio has delivered a commendable compound annual growth rate (CAGR) of 10.93%. A hypothetical initial investment would have demonstrated resilience, although the portfolio experienced a maximum drawdown of -34.22%. This indicates potential volatility during market downturns. The portfolio's performance is largely driven by the equity market, which can be rewarding but also risky. Investors should be aware of the volatility and be prepared for fluctuations. To maintain a balanced approach, it's crucial to regularly review the portfolio's performance and adjust the strategy to align with long-term financial goals.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the results showed a median portfolio value increase of 286.39% at the 50th percentile. The portfolio demonstrated positive returns in 979 simulations, with an annualized return of 11.64%. This suggests a strong potential for future growth, though outcomes can vary widely. Investors should consider the range of possible outcomes and prepare for both best and worst-case scenarios. Regularly reassessing risk tolerance and investment goals will help navigate future uncertainties.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%
  • Other
    0%
  • No data
    0%

The portfolio is heavily weighted in stocks, making up 99.3% of the asset allocation. This concentration in equities offers the potential for high returns but also increases exposure to market volatility. A small percentage is held in cash and other assets, which provides minimal risk mitigation. For investors seeking to reduce risk, diversifying into other asset classes, such as bonds or alternative investments, could provide more stability. Balancing the portfolio with different asset classes can help cushion against market downturns and enhance overall risk-adjusted returns.

Sectors Info

  • Technology
    25%
  • Financials
    16%
  • Industrials
    11%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Basic Materials
    4%
  • Energy
    4%
  • Real Estate
    3%
  • Utilities
    3%

The sector allocation within the portfolio shows significant exposure to technology at approximately 25%, followed by financial services, industrials, and healthcare. This distribution reflects a tilt towards growth-oriented sectors. While this can drive returns in a bull market, it may also expose the portfolio to sector-specific risks. To mitigate this, investors should consider a more balanced sector allocation. Diversifying across various sectors can reduce the impact of sector downturns and provide a more stable return profile, aligning with the portfolio's balanced risk classification.

Regions Info

  • North America
    67%
  • Europe Developed
    14%
  • Asia Emerging
    6%
  • Japan
    5%
  • Asia Developed
    4%
  • Australasia
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%
  • Europe Emerging
    0%

Geographically, the portfolio is predominantly invested in North America, which accounts for nearly 67% of the allocation. Europe Developed and Asia Emerging also have notable allocations. This geographic distribution offers exposure to developed and emerging markets, providing growth opportunities and risk diversification. However, the heavy North American bias may lead to overexposure to regional economic dynamics. Investors might consider adjusting the geographic allocation to achieve a more even distribution, potentially enhancing diversification and reducing reliance on any single market's performance.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Total World Stock Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard Total International Stock Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, notably among the four ETFs. This high correlation means that the assets tend to move in the same direction, potentially reducing diversification benefits. While correlated assets can amplify returns during market upswings, they may also increase risk during downturns. To enhance diversification, investors should consider reducing the number of overlapping assets. By including less correlated investments, the portfolio can achieve more balanced risk exposure, providing a smoother return trajectory across different market conditions.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total World Stock Index Fund ETF Shares 1.80%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.82%

The portfolio's total dividend yield stands at 1.82%, with the Vanguard Total International Stock Index Fund ETF Shares offering the highest yield at 3.0%. Dividends provide a steady income stream and can enhance total returns, especially in low-interest-rate environments. However, the overall yield is relatively modest, reflecting the portfolio's growth focus. Investors seeking higher income may want to explore dividend-focused investments or consider reinvesting dividends to capitalize on compounding. Balancing growth and income strategies can help achieve a more comprehensive investment approach.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The total expense ratio (TER) for the portfolio is 0.06%, which is quite low and reflects the cost-effectiveness of using Vanguard ETFs. Lower investment costs help maximize net returns over time, an important consideration for long-term growth. The cost advantage of this portfolio is a positive aspect, allowing investors to retain more of their returns. Maintaining low costs should remain a priority, and investors should periodically review the expense ratios to ensure they remain competitive. Keeping costs in check supports the overall investment strategy and enhances profitability.

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.

Before optimizing the portfolio, addressing the overlap in highly correlated assets is crucial. Reducing redundancy can enhance diversification and improve risk management. To achieve a riskier or more conservative portfolio, investors can move along the efficient frontier by adjusting asset allocations. For a riskier portfolio, increase exposure to equities or growth sectors. For a more conservative approach, consider adding bonds or defensive sectors. This adjustment helps align the portfolio with individual risk preferences and investment objectives, paving the way for a more optimized investment strategy.

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