Balanced Portfolio with Low Diversification and High North American Exposure

Report created on Dec 4, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily weighted towards the Vanguard S&P 500 ETF, making up 80% of the composition, with Verizon Communications Inc. comprising the remaining 20%. This concentration in just two positions indicates low diversification, which can expose the portfolio to higher volatility. While the S&P 500 ETF offers exposure to a broad range of sectors, the significant allocation in Verizon skews the portfolio towards the communication services sector. Increasing diversification by adding more varied assets could help mitigate risk and enhance stability.

Growth Info

With a hypothetical initial investment, the portfolio has demonstrated a strong historical performance, achieving a compound annual growth rate (CAGR) of 12.51%. However, it also experienced a maximum drawdown of -30.53%, indicating periods of significant volatility. This performance highlights the potential for substantial returns but also underscores the inherent risk. To maintain a balanced risk-return profile, it's crucial to monitor market conditions and consider diversifying to reduce potential drawdowns.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The simulation, which considers a range of possible outcomes, shows a median return of 233.87% and an annualized return of 10.66%. While 948 simulations resulted in positive returns, the 5th percentile indicated a potential loss of -1.58%. This analysis suggests a generally optimistic outlook but also highlights the uncertainty inherent in investing. Regularly reviewing the portfolio can help adapt to changing conditions and optimize future outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio's asset class allocation is predominantly in stocks, accounting for 99.93%, with a negligible cash position. This heavy reliance on equities aligns with a growth-oriented strategy but may expose the portfolio to market volatility. Diversifying into other asset classes, such as bonds or real estate, could provide stability and reduce risk. Balancing the asset classes can help achieve a more consistent performance, especially during market downturns.

Sectors Info

  • Telecommunications
    27%
  • Technology
    26%
  • Financials
    10%
  • Health Care
    9%
  • Consumer Discretionary
    8%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation is concentrated, with communication services and technology together comprising over 50% of the portfolio. This focus can lead to sector-specific risks, especially if these industries face downturns. While these sectors have shown strong growth, diversifying into other sectors like healthcare or consumer defensives could provide a buffer against sector volatility. A more balanced sector allocation can enhance resilience and capitalize on various economic cycles.

Regions Info

  • North America
    100%

The geographic composition is overwhelmingly North American, with 99.52% of assets allocated there. This regional concentration can lead to exposure to local economic and political risks. While the U.S. market has been a strong performer, diversifying into other regions could reduce risk and take advantage of global growth opportunities. Expanding geographic exposure can help mitigate regional risks and enhance long-term growth potential.

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's optimization chart suggests a need for diversification before optimizing along the efficient frontier. By introducing varied asset classes, the portfolio can move towards a more balanced risk-return profile. For a riskier approach, increasing equity allocation in volatile sectors could be considered. Conversely, for a conservative strategy, incorporating bonds or other low-risk assets would help. Balancing these elements can optimize performance while aligning with personal risk tolerance.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Verizon Communications Inc 6.10%
  • Weighted yield (per year) 2.18%

The portfolio has a total dividend yield of 2.18%, with Verizon Communications Inc. contributing a substantial 6.1% yield. This income component provides a cushion against market volatility and can enhance total returns. While dividends are a positive feature, relying too heavily on high-yield stocks can introduce risk if the company's financial health declines. Balancing growth and income-focused investments can help achieve a more consistent income stream.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.02%

The portfolio benefits from low costs, with the Vanguard S&P 500 ETF having a Total Expense Ratio (TER) of just 0.03%. Keeping costs low is crucial for maximizing net returns over time. However, it's important to ensure that cost-cutting doesn't compromise diversification or asset quality. Regularly reviewing the expense ratios of all holdings can help maintain cost efficiency while ensuring the portfolio remains aligned with investment goals.

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