A balanced US-focused portfolio with strong growth potential and low-cost ETFs
Report created on Dec 20, 2024Risk profile
4/7
Diversification profile
4/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 70.00% -
VU Vanguard Growth Index Fund ETF Shares
VUG - US9229087369 15.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 15.00%
The portfolio is heavily weighted towards the Vanguard S&P 500 ETF, comprising 70% of total assets. This indicates a strong focus on large-cap US equities, which are generally considered stable and reliable. The remaining 30% is split evenly between the Vanguard Growth Index Fund ETF Shares and the Vanguard Total International Stock Index Fund ETF Shares. This composition aligns with common balanced portfolio benchmarks, emphasizing both domestic and international exposure. For enhanced diversification, consider incorporating additional asset classes such as bonds or real estate investment trusts, which can provide stability and income during market fluctuations.
Growth
Historically, the portfolio has demonstrated a robust Compound Annual Growth Rate (CAGR) of 13.12%, which is impressive compared to typical market benchmarks. However, it also experienced a significant maximum drawdown of -33.52%, highlighting potential volatility. This performance suggests that while the portfolio has achieved substantial returns, it may be susceptible to market downturns. Investors should be aware that past performance does not guarantee future results. To mitigate risk, consider diversifying further or incorporating defensive assets that can cushion against future downturns.
Projection
Using Monte Carlo simulations, which analyze potential future outcomes based on historical data, the portfolio shows promising forward projections. With 1,000 simulations, the median (50th percentile) outcome predicts a portfolio growth of 352.75%. However, outcomes range widely, with a low-end (5th percentile) projection of 44.88%. This variability underscores the inherent uncertainty in financial markets. While simulations offer valuable insights, they are not foolproof and should be used alongside other risk management strategies. Diversifying further could help stabilize these projections.
Asset classes
- Stocks 100%
The portfolio is heavily skewed towards stocks, with nearly 100% allocation, which limits diversification benefits. While stocks offer growth potential, they also expose the portfolio to market volatility. Including other asset classes like bonds or commodities could enhance diversification and reduce risk. Compared to typical balanced portfolios, which often incorporate a mix of stocks and bonds, this portfolio might be considered aggressive. Diversifying across asset classes can provide more stable returns and protect against market downturns.
Sectors
- Technology 32%
- Financials 13%
- Consumer Discretionary 11%
- Health Care 10%
- Telecommunications 9%
- Industrials 8%
- Consumer Staples 5%
- Energy 3%
- Basic Materials 3%
- Utilities 2%
- Real Estate 2%
The portfolio's sector allocation is tech-heavy, with technology making up over 32% of the portfolio. While this sector has driven strong growth in recent years, it may also introduce higher volatility, particularly during interest rate hikes. Other sectors, such as financial services and consumer cyclicals, are also well-represented, providing some balance. However, sectors like utilities and real estate are underrepresented. To achieve a more balanced sector allocation, consider increasing exposure to traditionally stable sectors, which can offer defensive qualities in turbulent markets.
Regions
- North America 86%
- Europe Developed 6%
- Asia Emerging 2%
- Japan 2%
- Asia Developed 2%
- Australasia 1%
- Africa/Middle East 1%
The portfolio's geographic exposure is predominantly North American, comprising over 85% of the allocation. While this aligns with the focus on US equities, it limits exposure to potential growth in emerging markets. Compared to global benchmarks, this allocation may be considered concentrated. To enhance geographic diversification, consider increasing exposure to regions like Asia or Latin America, which could offer growth opportunities and reduce reliance on the US market. Such diversification can help mitigate risks associated with regional economic downturns.
Redundant positions
-
High correlationVanguard S&P 500 ETFVanguard Growth Index Fund ETF Shares
The portfolio contains highly correlated assets, particularly between the Vanguard S&P 500 ETF and the Vanguard Growth Index Fund ETF Shares. High correlation means these assets tend to move in the same direction, which can limit diversification benefits during market downturns. By reducing overlap and incorporating less correlated assets, the portfolio can achieve better risk management. Consider diversifying into assets with lower correlation to US equities, such as international stocks or bonds, to enhance overall portfolio resilience.
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 can be optimized by addressing the overlap between highly correlated assets and exploring the Efficient Frontier. The Efficient Frontier is a concept that helps identify the best possible risk-return ratio for a given set of assets. By adjusting allocations between existing assets, the portfolio can potentially achieve a more optimal balance of risk and return. However, it's important to note that this optimization is based solely on the current assets and may not address other goals like diversification or income.
Dividends
- Vanguard S&P 500 ETF 0.90%
- Vanguard Growth Index Fund ETF Shares 0.50%
- Vanguard Total International Stock Index Fund ETF Shares 1.60%
- Weighted yield (per year) 0.94%
The portfolio's dividend yield is relatively low at 0.94%, reflecting its focus on growth-oriented assets. While dividends can provide a steady income stream, this portfolio prioritizes capital appreciation. For investors seeking income, incorporating higher-yielding assets could be beneficial. However, for those focused on growth, the current allocation is appropriate, as reinvesting dividends can compound returns over time. Balancing growth and income could involve adding dividend-focused funds or stocks to supplement the portfolio's yield.
Ongoing product costs
- Vanguard S&P 500 ETF 0.03%
- Vanguard Growth Index Fund ETF Shares 0.04%
- 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 is well below industry averages, ensuring that more of the portfolio's returns are retained by the investor. Low costs are a significant advantage, as they contribute to better long-term performance by minimizing drag on returns. Maintaining this cost efficiency is crucial, but it is also important to ensure that the portfolio's composition and diversification align with investment goals. Regularly reviewing and optimizing costs can further enhance performance.
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