Balanced Portfolio with High US Exposure and Moderate Global Diversification Offers Strong Historic Returns

Report created on Dec 4, 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 is composed of two main ETFs: the Vanguard Total Stock Market Index Fund ETF Shares, which makes up about 88.65% of the portfolio, and the Vanguard Total International Stock Index Fund ETF Shares, which accounts for the remaining 11.35%. This composition emphasizes a strong focus on the US market while maintaining some exposure to international stocks. The allocation is heavily weighted towards equities, with a minimal presence of cash and other assets. This setup provides a solid foundation for growth, but it could benefit from further diversification to manage risk effectively.

Growth Info

Historically, the portfolio has demonstrated impressive performance, with a compound annual growth rate (CAGR) of 12.99%. However, it also experienced a significant maximum drawdown of -34.83%, indicating potential volatility. The portfolio's returns are concentrated in just 31 days, which suggests that the overall performance relies on a few high-return periods. This historical data highlights the importance of remaining invested during volatile times to capture these returns. Investors should be aware of the potential for large fluctuations and consider strategies to mitigate downside risk.

Projection Info

Using a Monte-Carlo simulation, which involves running numerous scenarios to predict future performance, the portfolio shows a promising outlook. With 1,000 simulations, the median (50th percentile) outcome projects a 247.66% increase in portfolio value, while the 67th percentile projects a 357.32% increase. The 5th percentile, however, shows a lower return of 19.06%, highlighting the range of possible outcomes. The annualized return across all simulations is 10.66%, suggesting that, while there is potential for substantial growth, investors should remain cognizant of possible variability in returns.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, representing 99.64% of the asset allocation, with negligible amounts in cash and other categories. This heavy concentration in equities can drive strong growth but also introduces significant risk, especially during market downturns. To achieve a more balanced risk-return profile, investors may consider incorporating other asset classes, such as bonds or real estate, which can provide stability and reduce overall portfolio volatility. Diversifying across asset classes can help cushion against market fluctuations and enhance long-term performance.

Sectors Info

  • Technology
    29%
  • Financials
    14%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Real Estate
    3%
  • Basic Materials
    3%
  • Utilities
    3%

The sector allocation within the portfolio is diverse, with the largest exposure in technology at 28.75%, followed by financial services and healthcare. This distribution provides a broad exposure to different economic sectors, which can help mitigate sector-specific risks. However, the heavy reliance on technology could increase vulnerability to sector downturns. To further enhance diversification, investors might consider adjusting the sector allocation to ensure a more balanced distribution across various industries. This approach can help manage sector-specific risks while maintaining growth potential.

Regions Info

  • North America
    89%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is predominantly focused on North America, with 89.11% of assets allocated there. This strong US bias provides exposure to a robust and mature market but limits the benefits of geographic diversification. The remaining assets are spread across Europe, Asia, and other regions, offering some international exposure. To achieve a more diversified geographic allocation, investors could consider increasing exposure to emerging markets or other regions. This strategy can enhance the portfolio's resilience against regional economic downturns and capitalize on global growth opportunities.

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 optimization chart suggests potential for improvement by adjusting the asset allocation along the efficient frontier. To achieve a riskier portfolio, investors could increase exposure to equities or growth-oriented sectors, potentially enhancing returns. Conversely, for a more conservative approach, incorporating bonds or other low-volatility assets could reduce risk. Prioritizing diversification across asset classes and regions is key to optimizing the portfolio. While the current setup provides a solid foundation, focusing on these areas can further enhance performance and align with the investor's risk tolerance and financial goals.

Dividends Info

  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.40%

The portfolio's dividend yield stands at 1.4%, with the Vanguard Total Stock Market Index Fund ETF Shares yielding 1.2% and the Vanguard Total International Stock Index Fund ETF Shares yielding 3.0%. This yield provides a modest income stream, which can be beneficial for income-focused investors. However, the focus on growth-oriented sectors may limit the overall dividend yield. Investors seeking higher income may consider exploring additional dividend-paying investments. Balancing growth and income can enhance the portfolio's overall return profile, catering to both capital appreciation and income generation.

Ongoing product costs Info

  • 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's costs are impressively low, with an overall total expense ratio (TER) of just 0.04%. This low-cost structure is advantageous, as it minimizes the drag on returns and allows more of the portfolio's gains to be retained by the investor. Keeping investment costs low is a key principle for maximizing long-term returns. Investors should continue to prioritize low-cost investment options, as reducing fees can significantly enhance the portfolio's performance over time. Maintaining a focus on cost efficiency is crucial for achieving optimal investment outcomes.

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