Balanced Portfolio with High U.S. Exposure and Low Diversity Showing Strong Historical Performance and Potential for Optimization

Report created on Dec 3, 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 U.S. equity ETFs, with a significant 75% allocation in the Vanguard S&P 500 ETF. The Invesco NASDAQ 100 ETF makes up 20%, while the Avantis U.S. Small Cap Value ETF accounts for 5%. This composition indicates a strong focus on large-cap U.S. stocks, with a slight tilt towards small-cap value. The portfolio's low diversity suggests a concentrated investment approach, which might expose it to higher volatility. Balancing the allocation could improve diversification and potentially reduce risk.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 16.53%. However, it experienced a maximum drawdown of -25.69%, indicating some vulnerability to market downturns. The performance is concentrated, with 90% of returns occurring over just 22 days. This suggests that while the portfolio can deliver strong returns, it may be susceptible to significant fluctuations. Maintaining a balanced approach and considering diversification could help mitigate these risks and provide more stable returns over time.

Projection Info

A Monte Carlo simulation, running 1,000 scenarios, projects a 21.03% annualized return with a hypothetical initial investment. This analysis provides a range of outcomes, with the 5th percentile at 203.21% and the 67th percentile at 1,547.64%. Monte Carlo simulations help investors understand potential future performance by considering various market conditions. While the projections are optimistic, acknowledging the inherent uncertainties and ensuring the portfolio aligns with personal risk tolerance is essential. Adjusting the asset allocation could enhance the portfolio's resilience against adverse market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly invested in stocks, with a staggering 99.92% allocation to equities and a minimal 0.08% in cash. This heavy stock concentration suggests a growth-oriented strategy, aiming for capital appreciation. While equities can offer substantial returns, they also come with higher risk. Introducing other asset classes, such as bonds, could provide stability and reduce overall volatility. A more balanced asset allocation might better align with a moderate risk profile, offering a smoother investment journey.

Sectors Info

  • Technology
    35%
  • Financials
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    10%
  • Health Care
    10%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

Sector allocation is skewed towards technology, which comprises 35.29% of the portfolio. Other significant sectors include financial services, consumer cyclicals, and communication services. This concentration in technology may lead to increased volatility due to the sector's inherent cyclicality. While sector-focused investments can yield high returns, they also expose the portfolio to sector-specific risks. Diversifying into other sectors could help mitigate these risks and provide a more balanced approach, potentially improving long-term stability and performance.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is heavily concentrated in North America, with 98.96% exposure. This lack of international diversification may limit growth opportunities and increase vulnerability to regional economic downturns. While U.S. markets have historically performed well, introducing more geographic diversity could enhance the portfolio's resilience. Allocating a portion to international markets may provide exposure to diverse economic cycles and growth prospects, potentially leading to a more balanced and robust 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 shows potential for optimization, with an efficient frontier suggesting higher returns at the same risk level. By adjusting allocations, the expected return could increase to 20.18% without raising risk. Investors can achieve a riskier or more conservative profile by moving along the efficient frontier. Exploring other asset classes or sectors might enhance diversification and improve the risk-return balance. However, focusing on aligning the portfolio with personal financial goals and risk tolerance is crucial before making significant changes.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.10%

The portfolio's dividend yield stands at 1.1%, with contributions from the Avantis U.S. Small Cap Value ETF (1.5%), Vanguard S&P 500 ETF (1.2%), and Invesco NASDAQ 100 ETF (0.6%). While dividends provide a steady income stream, the current yield is relatively low. Increasing the allocation to higher-yielding investments could enhance income generation. However, balancing yield with growth potential is crucial to ensure overall performance. A strategic approach to dividend investing can provide a reliable income stream while maintaining capital growth.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is low at 0.06%, reflecting cost-effective fund choices. The Vanguard S&P 500 ETF has the lowest cost at 0.03%, followed by the Invesco NASDAQ 100 ETF at 0.15% and Avantis U.S. Small Cap Value ETF at 0.25%. Keeping costs low is vital for maximizing net returns. However, it's essential to ensure that cost savings don't compromise investment quality. Regularly reviewing fund expenses and performance can help maintain cost efficiency while achieving investment goals.

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