A balanced portfolio with a strong focus on US equities and low-cost ETFs

Report created on Jan 14, 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 equities, with 94.5% in stocks and only 5% in bonds. The composition is typical for balanced portfolios, which aim for moderate growth with some income generation. This allocation leans heavily towards US equities, with a minor position in international stocks and bonds. The asset mix is suitable for investors seeking growth but may benefit from more diversification in asset classes to reduce risk exposure.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 12.65%. This is a solid return, especially for a balanced portfolio. However, the maximum drawdown of -32.9% indicates significant volatility during downturns. Comparing this to benchmarks, the performance is commendable but highlights the need for risk management strategies. It’s important to remember that past performance does not guarantee future results, and maintaining a diversified portfolio is crucial.

Projection Info

Monte Carlo simulations, which use historical data to project potential future outcomes, suggest a median return of 281.09% over the investment horizon. This indicates a strong growth potential, but the 5th percentile shows a much lower return of 28.55%, highlighting the inherent uncertainty in projections. While the simulations are optimistic, they rely on historical data, which may not reflect future market conditions. It’s essential to regularly reassess the portfolio to align with changing market dynamics.

Asset classes Info

  • Stocks
    95%
  • Bonds
    5%

The portfolio is concentrated in stocks, with minimal exposure to bonds and cash. This heavy equity allocation enhances growth potential but increases vulnerability to market volatility. Compared to benchmark norms, which often include a more balanced mix of stocks and bonds, this portfolio could benefit from increased bond exposure to provide stability. Diversifying across asset classes can help mitigate risks and provide a smoother return profile over time.

Sectors Info

  • Technology
    28%
  • Financials
    14%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    8%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    2%

Sector allocation is heavily skewed towards technology, with 27.65% of the portfolio, followed by financial services and healthcare. This concentration may lead to higher volatility, especially if tech stocks face downturns. Compared to common benchmarks, this portfolio is more tech-heavy, which can be a strength during growth phases but a risk during corrections. Balancing sector exposure by adding underrepresented areas can enhance diversification and reduce sector-specific risks.

Regions Info

  • North America
    85%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is predominantly focused on North America, with 85.44% exposure. This limits diversification benefits that global exposure can provide. Compared to benchmark allocations, which typically have more balanced geographic exposure, this portfolio could benefit from increased diversification in international markets. Expanding geographic exposure can help mitigate risks associated with economic or political issues in a single region.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard Large-Cap Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly among US large-cap ETFs. High correlation means that these assets tend to move together, reducing diversification benefits. In market downturns, this can lead to larger losses as the lack of diversification limits risk mitigation. To optimize the portfolio, consider reducing overlap among correlated assets and introducing more diverse investments that do not move in tandem.

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 could be optimized using the Efficient Frontier, which aims to achieve the best possible risk-return ratio by adjusting asset weights. However, before optimizing, addressing the high correlation among assets is crucial to enhance diversification. By reducing overlap and considering different asset classes or sectors, the portfolio can achieve a more efficient balance between risk and return.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.70%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Large-Cap Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 1.78%

The portfolio generates a total dividend yield of 1.78%, primarily from the Schwab U.S. Dividend Equity ETF and the Vanguard Total Bond Market Index Fund ETF Shares. Dividends can provide a steady income stream, which is beneficial for balanced portfolios seeking both growth and income. However, the focus remains on growth rather than income. Investors seeking higher income may consider increasing allocations to dividend-focused assets.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Large-Cap 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%. Low costs are crucial for enhancing long-term returns, as high fees can erode profits over time. The use of low-cost ETFs is a positive aspect of this portfolio, aligning with best practices for cost-efficient investing. Maintaining a focus on minimizing expenses will continue to support the portfolio's performance.

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