A balanced portfolio with strong US exposure and low-cost diversified ETFs
Report created on Dec 31, 2024Risk profile
4/7
Diversification profile
4/5
Positions
-
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 70.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 30.00%
This portfolio is composed of two ETFs: the Vanguard Total Stock Market Index Fund ETF (70%) and the Vanguard Total International Stock Index Fund ETF (30%). This allocation indicates a strong focus on equities, with a significant tilt towards US stocks. Compared to a typical balanced portfolio, which might include bonds and other asset classes, this portfolio is heavily weighted in stocks. This choice aligns with a growth-oriented strategy but may expose the portfolio to higher volatility. To align with a more traditional balanced portfolio, consider incorporating fixed-income assets to reduce risk.
Growth
Historically, this portfolio has delivered a Compound Annual Growth Rate (CAGR) of 11.59%, which is impressive. However, it experienced a maximum drawdown of -34.6%, indicating significant volatility during market downturns. In comparison to benchmarks, this performance suggests a strong return potential, albeit with notable risk. It's important to remember that past performance doesn't guarantee future results. To mitigate drawdowns, consider diversifying with less volatile assets, such as bonds or real estate, which can provide stability during market fluctuations.
Projection
The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns. With a median (50th percentile) projection of 236.15% and a 5th percentile at 13.78%, there is a high degree of uncertainty. This method highlights the possibility of both significant gains and potential losses. While the simulation shows a strong likelihood of positive returns, it's crucial to understand that these projections are not guarantees. To better prepare for future market conditions, consider regular portfolio reviews and adjustments based on changing economic indicators.
Asset classes
- Stocks 99%
- Cash 1%
The portfolio is overwhelmingly allocated to stocks, constituting over 99% of the total assets. This high concentration in equities suggests a strong growth orientation but also implies higher risk. Compared to a typical balanced portfolio, which might include a mix of stocks, bonds, and other asset classes, this portfolio lacks diversification across asset classes. To enhance risk management, consider incorporating bonds or alternative investments, which can provide income and reduce overall portfolio volatility.
Sectors
- Technology 25%
- Financials 16%
- Health Care 11%
- Industrials 11%
- Consumer Discretionary 11%
- Telecommunications 8%
- Consumer Staples 6%
- Energy 4%
- Basic Materials 4%
- Real Estate 3%
- Utilities 3%
Sector allocation is diverse, with significant exposure to technology (25.48%), financial services (15.69%), and healthcare (10.81%). This distribution aligns closely with global benchmarks, indicating a well-diversified sectoral approach. However, the technology sector's high weighting may lead to increased volatility, especially during periods of rising interest rates. To maintain balance, periodically review sector weights and consider rebalancing if one sector becomes overly dominant, which can help manage risk and capitalize on varying sector performance trends.
Regions
- North America 72%
- Europe Developed 12%
- Asia Emerging 5%
- Japan 5%
- Asia Developed 3%
- Australasia 2%
- Africa/Middle East 1%
- Latin America 1%
Geographically, the portfolio is predominantly invested in North America (72.08%), with limited exposure to emerging markets. This allocation reflects a strong home-country bias, which can be beneficial due to familiarity and stability. However, it also limits diversification benefits that come from international markets. To enhance geographic diversification, consider increasing exposure to underrepresented regions, such as emerging markets, which can offer growth opportunities and reduce reliance on the US market.
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 potentially be optimized using the Efficient Frontier, which suggests the best possible risk-return balance based on current assets. This approach doesn't necessarily mean adding new assets but rather adjusting allocations to enhance efficiency. By exploring different combinations of the existing ETFs, it's possible to achieve a more favorable risk-return ratio. Regularly reassessing asset weights and considering small adjustments can help maintain an optimal balance as market conditions evolve.
Dividends
- Vanguard Total Stock Market Index Fund ETF Shares 1.30%
- Vanguard Total International Stock Index Fund ETF Shares 3.40%
- Weighted yield (per year) 1.93%
The portfolio's dividend yield stands at 1.93%, with the international ETF contributing a higher yield (3.4%) compared to the domestic ETF (1.3%). Dividends can provide a steady income stream, which is especially valuable during periods of market volatility. For investors seeking income, this yield offers moderate support. To increase income potential, consider incorporating higher-yielding assets or dividend-focused funds, which can enhance cash flow without significantly altering the overall growth orientation.
Ongoing product costs
- 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) 0.04%
The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.04%. This low-cost structure is advantageous for long-term performance, as it allows more of the investment returns to be retained. Compared to industry averages, these costs are exceptionally competitive, supporting better net returns over time. Maintaining this low-cost focus is beneficial; however, always review new investment options for cost efficiency to ensure continued alignment with financial goals.
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