A broadly diversified portfolio with a balanced risk profile and a focus on US equities

Report created on Dec 28, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio consists of four Vanguard ETFs, with a strong emphasis on US equities. The Vanguard S&P 500 ETF takes the largest share at 40%, followed by 20% allocations to the Vanguard Dividend Appreciation, Total Stock Market, and Total International Stock Index Funds. This composition aligns closely with a typical balanced portfolio, prioritizing large-cap US stocks. While this structure supports growth, it may benefit from diversifying beyond US markets to reduce potential domestic risk concentration. A more varied asset mix could enhance resilience against market fluctuations.

Growth Info

Historically, the portfolio has delivered a commendable CAGR of 12.1%, reflecting robust growth over time. However, the maximum drawdown of -33.59% indicates significant volatility during downturns. This performance is consistent with a balanced risk profile, where higher returns are often accompanied by increased risk. Comparing this to benchmark indices, the portfolio's growth is impressive, though the drawdown suggests a need for risk mitigation strategies, such as incorporating assets less correlated with equities to buffer against market shocks.

Projection Info

The Monte Carlo simulation, which uses historical data to forecast potential outcomes, suggests a promising future for the portfolio. With a median projection of 339.53% growth and a high probability of positive returns, the outlook is optimistic. However, it's essential to remember that simulations rely on past performance, which doesn't guarantee future results. Diversifying beyond highly correlated assets could improve these projections by reducing risk and potentially smoothing returns across varying market conditions.

Asset classes Info

  • Stocks
    99%

The portfolio is heavily weighted in stocks, accounting for over 99% of the allocation, with negligible cash and other assets. This concentration in equities aligns with a growth-focused strategy but may lack the diversification benefits of including bonds or alternative assets. By incorporating other asset classes, the portfolio could achieve a more balanced risk-return profile, providing stability during market volatility and potentially enhancing overall performance through diversification.

Sectors Info

  • Technology
    27%
  • Financials
    16%
  • Health Care
    12%
  • Industrials
    10%
  • Consumer Discretionary
    10%
  • Consumer Staples
    7%
  • Telecommunications
    7%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

Sectorally, the portfolio is dominated by technology at 26.87%, followed by financial services and healthcare. This allocation mirrors common market indices but may expose the portfolio to sector-specific risks, particularly in tech-heavy environments sensitive to interest rate changes. While the spread across sectors is broad, considering a slight rebalance to increase exposure to underrepresented sectors could enhance diversification and reduce vulnerability to sector downturns, ensuring more stable long-term growth.

Regions Info

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

Geographically, the portfolio is predominantly focused on North America, with 81.16% exposure. While this aligns with the emphasis on US equities, it limits diversification benefits from international markets. The remaining allocation is spread thinly across other regions. Increasing exposure to emerging markets or underrepresented areas like Europe or Asia could provide a hedge against domestic market fluctuations and capitalize on growth opportunities abroad, enhancing overall portfolio resilience.

Redundant positions Info

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

The portfolio's assets show high correlation, particularly among the US-focused ETFs. This correlation suggests that the portfolio may not fully benefit from diversification, as similar assets tend to move together during market shifts. Reducing overlap and including less-correlated assets could mitigate risk and improve the portfolio's ability to withstand market volatility. This strategy would enhance diversification and potentially smooth returns across different economic environments.

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 risk-return profile could be optimized by addressing the high correlation among assets. Using the Efficient Frontier, the portfolio can be adjusted to achieve the best possible risk-return ratio, given the current assets. This involves reallocating weights to minimize risk for a given level of return. While not necessarily increasing diversification, this approach ensures that the portfolio is structured to maximize efficiency, providing a solid foundation for achieving investment goals.

Dividends Info

  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.30%
  • Weighted yield (per year) 1.72%

The portfolio offers a modest total dividend yield of 1.72%, with contributions from each ETF. While not the primary focus, dividends provide a steady income stream, which can be reinvested to compound growth over time. For investors seeking income, enhancing the yield by incorporating higher-dividend-paying assets might be considered. However, maintaining a balance with growth-focused investments is crucial to achieving long-term capital appreciation.

Ongoing product costs Info

  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • 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) 0.05%

The portfolio's costs are impressively low, with a total expense ratio (TER) of 0.05%. These minimal fees support better long-term performance by reducing the drag on returns. This cost efficiency is a significant advantage, allowing more of the portfolio's growth to benefit the investor directly. Maintaining this low-cost structure is crucial, but periodically reviewing for even lower-cost alternatives could further enhance net returns without sacrificing quality.

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