A balanced US-focused portfolio with strong tech presence and moderate diversification

Report created on Sep 29, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio primarily comprises ETFs, with a significant 40% allocation to the Vanguard S&P 500 ETF, followed by a 20% stake in the Invesco NASDAQ 100 ETF. The remaining 40% is spread across various Vanguard ETFs, focusing on small-cap, mid-cap, value, and international markets. This structure leans heavily on large-cap US equities, which aligns with many benchmark indices. The composition indicates a preference for growth and stability, but it could benefit from increased diversification, particularly in non-US markets and other asset classes like bonds, to reduce risk.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 14.40%. This is a strong return, especially when compared to typical market benchmarks. However, the maximum drawdown of -25.51% suggests that the portfolio can experience significant declines during market downturns. The concentration in large-cap US equities has likely contributed to these returns, but it also means the portfolio is susceptible to volatility. While past performance is not a guarantee of future results, maintaining a diversified approach can help mitigate risks during market fluctuations.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes, with the 50th percentile showing a 445.5% increase. Monte Carlo simulations use historical data to predict future performance by generating thousands of potential scenarios. Although the annualized return of 14.27% is promising, it's important to remember that these projections are based on past data and assume similar market conditions in the future. To manage expectations, consider the variability in outcomes and focus on long-term goals rather than short-term gains.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely composed of stocks, with no allocation to bonds or other asset classes. While this can potentially yield higher returns, it also increases exposure to market volatility. Diversification across different asset classes can provide a buffer during downturns, as bonds often perform differently than equities. Comparing this allocation to a balanced benchmark, which typically includes bonds, highlights an opportunity to diversify further. Adding fixed-income securities could enhance stability and reduce overall risk, aligning the portfolio more closely with a balanced risk profile.

Sectors Info

  • Technology
    30%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Industrials
    10%
  • Health Care
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    3%
  • Real Estate
    3%
  • Basic Materials
    3%

Technology represents 30% of the portfolio, which is a notable concentration compared to other sectors. This tech-heavy focus can lead to higher volatility, especially during periods of interest rate hikes or tech sector corrections. While sectors like Financial Services, Consumer Cyclicals, and Industrials also have significant allocations, the portfolio could benefit from a more balanced sector distribution. Aligning sector weights with broader market benchmarks can provide a more stable return profile and reduce sector-specific risks.

Regions Info

  • North America
    90%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%

The portfolio is heavily concentrated in North America, with 90% of its assets allocated there. This geographic focus limits exposure to international markets, which can offer diversification benefits and growth opportunities. While the US market has been strong, global diversification can mitigate risks associated with regional economic downturns. Increasing allocations to developed and emerging markets could enhance the portfolio's resilience and capitalize on growth in other regions, aligning more closely with a global benchmark.

Market capitalization Info

  • Mega-cap
    36%
  • Large-cap
    31%
  • Mid-cap
    26%
  • Small-cap
    6%
  • Micro-cap
    1%

With 36% in mega-cap and 31% in big-cap stocks, the portfolio leans towards large, established companies. While these provide stability and lower volatility, the 6% in small-cap stocks offers growth potential but with higher risk. This distribution aligns with a typical large-cap-focused benchmark, but increasing exposure to small and mid-cap stocks could enhance growth potential. Balancing market capitalization exposure can improve diversification, offering a mix of stability and growth opportunities.

Redundant positions Info

  • Vanguard Mid-Cap Index Fund ETF Shares
    Vanguard Small-Cap Index Fund ETF Shares
    High correlation

The portfolio has highly correlated assets, particularly between the Vanguard Mid-Cap and Small-Cap Index Fund ETFs. High correlation means these assets tend to move in the same direction, which can limit diversification benefits. During market downturns, this could lead to increased volatility. To enhance diversification, consider reducing exposure to highly correlated assets and introducing investments with lower correlation. This approach can help manage risk and improve the overall resilience of the portfolio.

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 identifies the best possible risk-return ratio based on current assets. However, optimization should consider the removal of highly correlated assets, as they do not contribute to diversification. The goal is to achieve the highest return for a given level of risk, which may involve reallocating existing assets rather than adding new ones. This approach ensures that the portfolio remains aligned with the investor's risk tolerance and financial goals, maximizing efficiency without compromising diversification.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard FTSE All-World ex-US Index Fund ETF Shares 1.50%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.80%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Value Index Fund ETF Shares 2.20%
  • Weighted yield (per year) 1.28%

The portfolio's dividend yield stands at 1.28%, with the Vanguard Value Index Fund ETF Shares offering the highest yield at 2.20%. Dividends can provide a steady income stream, which is particularly beneficial in volatile markets. While the yield is moderate, focusing on dividend-generating stocks can enhance returns without significantly increasing risk. This approach is well-suited for investors seeking income alongside capital appreciation. Consider maintaining or slightly increasing exposure to dividend-focused assets to balance growth and income.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard FTSE All-World ex-US Index Fund ETF Shares 0.07%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is impressively low at 0.06%, which is advantageous for long-term performance. Lower costs mean more of the returns are retained, compounding over time to enhance growth. This aligns with best practices for cost management, ensuring that fees do not erode returns. Maintaining this low-cost structure is beneficial, but it's essential to periodically review expenses to ensure they remain competitive. Keeping an eye on costs helps maximize the portfolio's potential over the long run.

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