Balanced Portfolio with High Domestic Exposure and Strong Historical Performance but Limited Diversification

Report created on Nov 26, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

This portfolio is predominantly made up of five ETFs, with the Vanguard Total Stock Market Index Fund ETF Shares taking the lead at 70%. The portfolio leans heavily towards equities, with a small allocation to bonds. This composition indicates a preference for growth through stock market exposure. While this setup can yield substantial returns, it's crucial to be aware of the associated risks. A more diversified approach could help mitigate these risks, especially during market downturns.

Growth Info

Historically, the portfolio has performed well, boasting a CAGR of 14.55%. With a max drawdown of -24.73%, it shows resilience but also vulnerability to market dips. The days that make up 90% of returns are limited, indicating that significant gains occurred in a short timeframe. While the historical performance is impressive, relying solely on past performance can be misleading. It's important to consider current market conditions and potential future shifts when assessing portfolio performance.

Projection Info

Using a Monte-Carlo simulation, which runs numerous hypothetical scenarios to predict future outcomes, the portfolio shows promising potential. With a median outcome of 375.8% growth, the simulations indicate a strong likelihood of positive returns. However, it's essential to remember that these are projections and not guarantees. Diversifying the portfolio further could enhance stability and potentially improve outcomes across a wider range of scenarios, offering a more balanced risk-return profile.

Asset classes Info

  • Stocks
    95%
  • Bonds
    5%

The portfolio is heavily weighted towards stocks with a 94.83% allocation, while bonds make up just 4.94%. This concentration in equities suggests a higher risk profile, which can be rewarding in bullish markets but risky during downturns. To balance risk, consider increasing the bond allocation or exploring other asset classes. A more diverse asset mix can provide stability and reduce the impact of market volatility on the portfolio's overall performance.

Sectors Info

  • Technology
    29%
  • Financials
    12%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    8%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Real Estate
    2%
  • Utilities
    2%
  • Basic Materials
    2%

The sector allocation is quite concentrated, with technology leading at 29.36%. Financial services and healthcare follow, but there's limited exposure to other sectors. This concentration can lead to increased volatility, especially if the leading sectors face downturns. A more balanced sector distribution could help mitigate risks and provide smoother returns. Exploring sectors that are underrepresented in the portfolio could enhance diversification and reduce sector-specific risks.

Regions Info

  • North America
    94%

Geographically, the portfolio is overwhelmingly focused on North America, with 94.33% of assets allocated there. This heavy domestic bias limits exposure to international markets, potentially missing out on global growth opportunities. While the U.S. market is robust, diversifying across different regions can reduce geopolitical risks and enhance returns. Consider increasing exposure to developed and emerging markets outside North America to achieve a more balanced global allocation.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio includes highly correlated assets, particularly among the Invesco NASDAQ 100 ETF, Vanguard S&P 500 ETF, and Vanguard Total Stock Market Index Fund ETF Shares. This correlation suggests that these assets tend to move in the same direction, reducing diversification benefits. Addressing this overlap can enhance diversification and improve risk management. Consider substituting or adding less correlated assets to achieve a more balanced portfolio that can better withstand market fluctuations.

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 can be optimized by addressing the high correlation among certain assets, which limits diversification benefits. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio, depending on the investor's preference. For a riskier approach, consider increasing equity exposure, while a more conservative portfolio could benefit from higher bond allocations. Before optimizing, focus on reducing overlapping assets to enhance diversification and improve overall risk management.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.54%

The portfolio's dividend yield stands at 1.54%, with the Schwab U.S. Dividend Equity ETF and Vanguard Total Bond Market Index Fund ETF Shares contributing the most. While this yield provides some income, it's relatively modest. For investors seeking higher income, exploring additional dividend-focused investments or increasing allocations to existing high-yield assets could be beneficial. Balancing income-generating assets with growth-focused ones can create a more comprehensive investment strategy.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio is low, at 0.04%, reflecting cost-efficient fund choices. Low costs are advantageous as they enhance net returns over time. Maintaining this cost-effective approach while optimizing the portfolio's diversification and risk-return profile is key. Staying mindful of expense ratios when making any changes or additions to the portfolio can ensure that costs remain low, maximizing the potential for long-term growth.

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