A balanced portfolio with strong focus on US equities and moderate dividend yield

Report created on Jan 11, 2025

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 heavily weighted towards the Vanguard S&P 500 ETF, comprising 60% of the total allocation. This indicates a strong focus on large-cap US equities. The Vanguard Dividend Appreciation Index Fund ETF Shares makes up 30%, emphasizing dividend growth stocks. The remaining 10% is allocated to international equities through the Vanguard Total International Stock Index Fund ETF Shares. This composition is moderately diversified, primarily focusing on US markets. While such a structure can provide robust exposure to established markets, it may lack diversification benefits from other asset classes and regions.

Growth Info

Historically, the portfolio has delivered a commendable Compound Annual Growth Rate (CAGR) of 12.73%, reflecting strong past performance. However, it experienced a maximum drawdown of -33.22%, indicating significant volatility during downturns. The portfolio's performance is largely driven by the S&P 500's historical strength. While past performance is encouraging, it's crucial to remember that it doesn't guarantee future results. Investors should remain aware of potential market fluctuations and consider strategies to mitigate drawdowns, such as diversification or hedging techniques.

Projection Info

A Monte Carlo simulation was conducted with 1,000 scenarios to project future outcomes based on historical data. The results show a wide range of potential returns, with a 5th percentile outcome of 26.56% and a 67th percentile outcome of 404.8%. The median (50th percentile) projection stands at 281.71%, highlighting the uncertainty and potential variability in returns. While the simulation suggests a positive outlook, with 983 simulations yielding positive returns, it's important to note that these projections rely on historical data, which may not fully capture future market dynamics.

Asset classes Info

  • Stocks
    100%

The portfolio is concentrated in stocks, with 99.68% of assets in equities, leaving minimal allocation to cash or other asset classes. This heavy stock allocation can lead to higher potential returns but also increased volatility. Compared to a more diversified benchmark, this portfolio may lack the stability provided by bonds or other asset classes. Introducing a modest allocation to fixed income or alternative investments could improve risk-adjusted returns, offering a buffer during market downturns and enhancing overall diversification.

Sectors Info

  • Technology
    28%
  • Financials
    16%
  • Health Care
    12%
  • Industrials
    9%
  • Consumer Discretionary
    9%
  • Consumer Staples
    8%
  • Telecommunications
    6%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

The portfolio's sector allocation is heavily skewed towards technology, which makes up 28.45% of the total. Other significant sectors include financial services and healthcare. While this mirrors common benchmarks, the tech-heavy focus could lead to higher volatility, especially during periods of regulatory changes or interest rate fluctuations. Balancing sector weights by increasing exposure to underrepresented areas, such as utilities or real estate, could reduce sector-specific risks and enhance stability. A more balanced sector distribution can also capitalize on diverse economic cycles.

Regions Info

  • North America
    90%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

The portfolio has significant geographic concentration, with 90.27% of assets allocated to North America. This heavy reliance on the US market could expose the portfolio to regional economic risks. While exposure to developed European and Asian markets is present, it's minimal. Expanding allocations to emerging markets or other developed regions could enhance diversification and capture growth opportunities outside the US. A more geographically balanced portfolio can mitigate regional risks and benefit from global economic trends.

Redundant positions Info

  • Vanguard Dividend Appreciation Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, notably between the Vanguard Dividend Appreciation Index Fund ETF Shares and the Vanguard S&P 500 ETF. High asset correlation can limit diversification benefits, as these assets tend to move together during market shifts. Reducing overlap by introducing less correlated assets could improve risk management and portfolio resilience. By diversifying across different asset types or sectors, the portfolio can better withstand market volatility and provide more stable returns.

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 structure can be optimized using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. However, optimization should focus on rebalancing existing assets rather than introducing new ones. By adjusting allocations within the current holdings, the portfolio can potentially improve its efficiency. Reducing exposure to highly correlated assets and balancing risk across sectors and geographies can lead to a more optimal portfolio. This approach ensures that the portfolio is well-positioned to achieve desired outcomes with minimal risk.

Dividends Info

  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 1.63%

The portfolio's overall dividend yield is 1.63%, with the Vanguard Dividend Appreciation Index Fund ETF Shares contributing the highest yield at 1.7%. Dividends can provide a steady income stream and enhance total returns, especially during periods of market turbulence. For investors seeking income, focusing on dividend growth stocks can be beneficial. However, it's essential to balance dividend yield with growth potential, ensuring the portfolio remains aligned with long-term investment goals and not overly reliant on income generation.

Ongoing product costs Info

  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • 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 low costs, with a total TER of 0.04%. This is advantageous for long-term performance, as lower fees mean more of the returns are kept by the investor. Vanguard's reputation for low-cost funds aligns well with cost-efficient investment strategies. While costs are impressively low, investors should continue to monitor for any changes in expense ratios and consider cost-effective alternatives if necessary. Maintaining a focus on minimizing fees can significantly enhance compounding benefits over time.

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