Balanced Portfolio with High Correlation and Low Geographic Diversification in Major U.S. ETFs

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Balanced Investors

This portfolio suits a balanced investor with moderate risk tolerance and a focus on U.S. equities. Such an investor seeks growth but is comfortable with some market volatility. They likely have a medium to long-term investment horizon and prioritize stability over aggressive growth. This investor values cost-efficiency and prefers familiar markets, like the U.S., but could benefit from increased diversification. Their goals might include steady capital appreciation and moderate income through dividends.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    27.27%
  • iShares Core S&P 500 ETF
    IVV - US4642872000
    13.64%
  • Invesco QQQ Trust
    QQQ - US46090E1038
    13.64%
  • Schwab U.S. Dividend Equity ETF
    SCHD - US8085247976
    13.64%
  • SPDR S&P 500 ETF Trust
    SPY - US78462F1030
    13.64%
  • Costco Wholesale Corp
    COST - US22160K1051
    9.09%
  • Vanguard Total Stock Market Index Fund ETF Shares
    VTI - US9229087690
    9.09%

The portfolio is heavily weighted towards ETFs, with a single stock position in Costco. The majority of the investments are in well-known U.S. ETFs, leading to a concentrated focus on the U.S. market. This composition indicates a preference for stability and familiarity, which is typical for investors focusing on the U.S. equity market. However, this also means that the portfolio lacks diversification across different asset classes and international markets. To enhance diversification, consider exploring other asset classes and regions to reduce reliance on U.S. equities.

Growth Info

Historically, this portfolio has demonstrated strong performance, with a CAGR of 15.31%. The portfolio experienced a maximum drawdown of -30.15%, indicating it can withstand significant market downturns. This shows a solid return potential, but the risk of substantial losses is also present. The performance is primarily driven by the U.S. market's historical strength. To maintain or improve this performance, consider diversifying to reduce the impact of potential U.S. market downturns and enhance overall stability.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows a promising forward projection. A hypothetical initial investment could result in a median portfolio value increase of 686.66%, with most simulations yielding positive returns. The simulation indicates a potential annualized return of 17.0%. However, the wide range of outcomes underscores the uncertainty inherent in investing. To improve future outcomes, consider reducing highly correlated assets and increasing diversification across asset classes and regions.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is predominantly invested in stocks, accounting for 99.88% of the total allocation. This heavy reliance on equities suggests a growth-oriented strategy, but it also increases exposure to market volatility. While stocks offer the potential for higher returns, they can also be more volatile. To balance risk and return, consider incorporating other asset classes such as bonds or real estate, which can provide stability and income, especially during market downturns.

Sectors

  • Technology
    29%
  • Consumer Staples
    15%
  • Financials
    11%
  • Consumer Discretionary
    10%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    7%
  • Energy
    4%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

Sector allocation is heavily skewed towards technology, consumer defensive, and financial services. This concentration can expose the portfolio to sector-specific risks, particularly if these sectors underperform. While technology has been a strong performer, over-reliance on a few sectors can increase volatility. To mitigate sector risk, consider diversifying across a broader range of industries. This can help cushion the portfolio against downturns in any single sector and provide more stable returns.

Regions

  • North America
    99%
  • Europe Developed
    1%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Asia Developed
    0%
  • Africa/Middle East
    0%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.22% of assets allocated there. This lack of geographic diversification increases vulnerability to U.S. market fluctuations. While the U.S. market has been robust, relying heavily on one region can limit growth opportunities elsewhere. To enhance geographic diversification, consider allocating a portion of the portfolio to international markets. This can provide exposure to different economic cycles and reduce reliance on the U.S. economy.

Redundant positions

  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    Invesco QQQ Trust
    Schwab U.S. Dividend Equity ETF
    iShares Core S&P 500 ETF
    SPDR S&P 500 ETF Trust
    High correlation

The portfolio exhibits high correlation among its assets, particularly between the major U.S. ETFs. This means that the assets tend to move in the same direction, which can limit the benefits of diversification. High correlation can increase portfolio volatility, as downturns affect multiple holdings simultaneously. To reduce correlation, consider adding assets with low or negative correlation to the existing holdings. This can help smooth out returns and reduce overall portfolio risk.

Dividends

  • Costco Wholesale Corp 2.00%
  • iShares Core S&P 500 ETF 1.20%
  • Invesco QQQ Trust 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • SPDR S&P 500 ETF Trust 1.20%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.50%

The portfolio's dividend yield stands at 1.5%, with Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. While dividends provide a steady income stream, the overall yield is modest. For income-focused investors, enhancing the dividend yield could be beneficial. Consider exploring dividend-focused investments or funds that offer higher yields without compromising diversification. This can increase the portfolio's income potential while still maintaining growth prospects.

Ongoing product costs

  • iShares Core S&P 500 ETF 0.03%
  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio is 0.06%, which is relatively low, reflecting the cost-effectiveness of the chosen ETFs. Low costs are advantageous as they help maximize net returns. Keeping investment costs low is crucial for long-term growth, as high fees can erode returns over time. However, always weigh the cost against the potential benefits of an investment. While maintaining low costs, ensure that the investment strategy aligns with your goals and risk tolerance.

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.

Before optimizing the portfolio, focus on reducing overlapping assets that offer no diversification benefits. The current portfolio has a high correlation, which limits diversification. By moving along the efficient frontier, the portfolio can be adjusted to achieve a more optimal balance of risk and return. For a riskier portfolio, consider increasing exposure to high-growth assets. Conversely, for a more conservative approach, incorporate more stable, income-generating investments. This strategy can enhance overall portfolio performance.

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