Balanced Single-Focused Portfolio with High Dividend Yield and Strong Historical Performance but Limited Geographic Diversification

Report created on Nov 24, 2024

Risk profile Info

4/7
Balanced
← Less risk More risk →

Diversification profile Info

1/5
Single-Focused
← Less diversification More diversification →

Positions

The portfolio consists of six ETFs, with a focus on U.S. equities and dividend-paying stocks. Notably, the Vanguard S&P 500 ETF holds the largest share, followed by the Schwab U.S. Dividend Equity ETF and Vanguard High Dividend Yield Index Fund ETF Shares. The portfolio is classified as single-focused due to its concentration in a few ETFs, which limits diversification. This composition is suitable for investors seeking exposure to U.S. equities and dividend income. However, the limited diversification may increase risk if the U.S. market underperforms.

Growth Info

Analyzing the historical performance, the portfolio has demonstrated a commendable CAGR of 16.25%, reflecting strong growth potential. The maximum drawdown of -18.47% indicates a moderate level of risk, which is expected in a balanced portfolio. With only 29 days making up 90% of returns, the portfolio shows a reliance on specific market movements for its performance. While historical performance is promising, it's essential to consider potential market changes and diversify further to mitigate risks associated with market volatility.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio shows a potential for significant growth, with a median return of 698.16%. The 5th percentile suggests a worst-case scenario of 186.48% return, while the 67th percentile indicates a potential return of 925.99%. This simulation assumes a hypothetical initial investment and provides a range of possible outcomes, highlighting the portfolio's growth potential. However, relying solely on historical data may not account for future market conditions, so maintaining a balanced approach is essential.

Asset classes Info

  • Stocks
    90%
  • Real Estate
    8%
  • No data
    2%

The portfolio is heavily weighted toward stocks, comprising nearly 90% of the total allocation. Real estate makes up about 8%, adding some diversification, while cash and other unclassified assets have minimal presence. The dominance of stocks aligns with the goal of capital appreciation and dividend income but may expose the portfolio to market volatility. To enhance stability, consider incorporating a broader mix of asset classes, such as bonds, which can provide a cushion during market downturns and contribute to risk management.

Sectors Info

  • Technology
    17%
  • Financials
    14%
  • Health Care
    12%
  • Consumer Staples
    10%
  • Real Estate
    10%
  • Industrials
    9%
  • Consumer Discretionary
    8%
  • Energy
    7%
  • Telecommunications
    6%
  • Utilities
    5%
  • Basic Materials
    2%

Sector allocation is diverse, with a notable emphasis on technology, financial services, and healthcare, which collectively represent a significant portion of the portfolio. These sectors are known for their growth potential and resilience. However, other sectors like utilities and basic materials have a smaller presence, which might limit exposure to defensive sectors. While the current allocation offers growth opportunities, balancing sector exposure could mitigate risks associated with sector-specific downturns and provide a more stable performance across varying economic conditions.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio is overwhelmingly concentrated in North America, with 98.75% of assets allocated to this region. This heavy focus on the U.S. market limits exposure to international markets, which could offer diversification benefits and reduce regional risk. The minimal allocations to Europe and Asia suggest an opportunity to enhance geographic diversification. By incorporating more international assets, the portfolio could potentially benefit from growth opportunities in emerging markets and reduce the impact of any adverse events in the U.S. market.

Redundant positions Info

  • Vanguard High Dividend Yield Index Fund ETF Shares
    Schwab U.S. Dividend Equity ETF
    High correlation

A significant observation in the portfolio is the high correlation between the Vanguard High Dividend Yield Index Fund ETF Shares and the Schwab U.S. Dividend Equity ETF. This correlation indicates that these assets tend to move in the same direction, limiting the diversification benefits. While both ETFs focus on dividend-paying stocks, diversifying into assets with lower correlation could improve the portfolio's risk-adjusted returns. Consider evaluating the overlap and exploring alternatives that provide complementary exposure to enhance overall portfolio diversification.

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 indicates potential for improvement by addressing asset overlap and enhancing diversification. Before optimizing along the efficient frontier, focus on reducing correlated holdings to unlock diversification benefits. Moving towards a riskier portfolio involves increasing equity exposure, while a conservative approach entails adding bonds or other low-risk assets. This balance helps align the portfolio with personal risk tolerance and financial goals, ensuring a more resilient investment strategy that can adapt to changing market conditions.

Dividends Info

  • JPMorgan Equity Premium Income ETF 7.00%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Invesco S&P 500® High Dividend Low Volatility ETF 3.30%
  • Vanguard Real Estate Index Fund ETF Shares 3.80%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.70%
  • Weighted yield (per year) 3.26%

The portfolio boasts a solid dividend yield of 3.26%, driven by high-yield ETFs like the JPMorgan Equity Premium Income ETF and the Schwab U.S. Dividend Equity ETF. This yield provides a steady income stream, appealing to income-focused investors. However, relying heavily on dividend income may expose the portfolio to interest rate risks, which can affect dividend-paying stocks. Balancing growth and income strategies by incorporating non-dividend-paying assets could enhance total returns and reduce sensitivity to interest rate fluctuations.

Ongoing product costs Info

  • JPMorgan Equity Premium Income ETF 0.35%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Invesco S&P 500® High Dividend Low Volatility ETF 0.30%
  • Vanguard Real Estate Index Fund ETF Shares 0.12%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.12%

The portfolio's total expense ratio (TER) is relatively low at 0.12%, reflecting cost-efficient ETF selections. The Vanguard S&P 500 ETF and Schwab U.S. Dividend Equity ETF contribute to this low-cost structure with minimal fees. Keeping costs low is crucial for maximizing returns, as high fees can erode gains over time. While the current cost structure is advantageous, continuous monitoring of expense ratios and seeking cost-effective alternatives can further optimize the portfolio's performance and ensure long-term financial success.

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