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Balanced Risk Portfolio with Significant U.S. Equity Focus and High Correlation Across Major Holdings

Report created on Jul 9, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is composed predominantly of ETFs, with a substantial allocation to the Vanguard S&P 500 ETF making up over half the portfolio. This indicates a strong focus on U.S. large-cap equities. Other significant holdings include the Vanguard Total International Stock Index Fund and various dividend-focused ETFs, suggesting a strategy that balances growth with income. The presence of the Invesco QQQ Trust and NASDAQ 100 ETF adds a tech-heavy tilt. With a balanced risk classification and broad diversification, the portfolio is well-rounded but heavily skewed toward U.S. equities.

Growth Info

Historically, the portfolio has performed impressively, with a compound annual growth rate of 14.05%. This suggests strong growth potential, although the maximum drawdown of -23.81% highlights the inherent risks associated with equity-heavy portfolios. The concentrated days that contribute to 90% of returns underscore the importance of maintaining a long-term perspective. While the historical performance is appealing, it's crucial to remember that past performance is not indicative of future results. Staying invested during volatile periods can be challenging, but it's essential for capturing long-term gains.

Projection Info

A Monte Carlo simulation, using a hypothetical initial investment, provides a forward projection of potential outcomes. With 1,000 simulations, the annualized return is estimated at 14.48%. The wide range of potential outcomes, from a 5th percentile return of 91.72% to a 67th percentile return of 659.8%, underscores the uncertainty and variability inherent in investing. While most simulations predict positive returns, it's important to remain cautious and prepared for various scenarios. This tool helps visualize the potential volatility and support long-term planning by understanding the range of possible portfolio outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, accounting for over 99% of its composition. This high equity allocation suggests a focus on growth, but it also introduces volatility. The minimal presence of cash and other asset classes indicates limited diversification beyond equities. While stocks offer higher potential returns, they also come with increased risk. To reduce risk, consider incorporating more diverse asset classes, such as bonds, which can provide stability and income. Balancing growth with risk management is essential for achieving long-term financial goals.

Sectors Info

  • Technology
    28%
  • Financials
    15%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    9%
  • Consumer Staples
    8%
  • Telecommunications
    7%
  • Energy
    5%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

Sector allocation reveals a significant concentration in technology, making up nearly 28% of the portfolio. This sector focus can drive growth but also exposes the portfolio to sector-specific risks. Other notable allocations include financial services, healthcare, and consumer cyclicals. While these sectors provide some diversification, the portfolio's heavy tech weighting could lead to increased volatility. To mitigate sector risk, consider rebalancing to achieve a more even distribution across sectors. This approach can enhance diversification and reduce the impact of sector-specific downturns on the portfolio.

Regions Info

  • North America
    87%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with over 86% allocation. This focus on the U.S. market provides exposure to a stable and mature economy but limits diversification across global markets. The limited exposure to Europe, Asia, and other regions may result in missed opportunities for growth in emerging markets. To enhance geographic diversification, consider increasing allocations to international equities. This can help capture growth potential from different economic cycles and reduce reliance on the performance of a single region.

Redundant positions Info

  • Schwab U.S. Dividend Equity ETF
    Invesco QQQ Trust
    Invesco NASDAQ 100 ETF
    Vanguard Dividend Appreciation Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlation among its major holdings, particularly within U.S. equity ETFs. This means that these assets tend to move in the same direction, reducing the benefits of diversification. While correlation can amplify gains during market upswings, it also increases risk during downturns. To achieve true diversification, consider incorporating assets with low or negative correlations. This can help balance the portfolio and protect against market volatility. Diversifying across different asset classes and geographies can also reduce correlation and enhance risk-adjusted returns.

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.

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Portfolio optimization may not be necessary at this stage due to high asset correlation, which limits diversification benefits. Instead, focus on rebalancing to achieve desired risk levels by adjusting asset allocations along the efficient frontier. For a riskier portfolio, increase equity exposure, while a more conservative approach involves incorporating bonds. Prioritize diversification across sectors and geographies to enhance risk-adjusted returns. Addressing these areas can provide a more balanced and resilient portfolio, aligning with long-term financial goals and risk preferences.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.77%

Dividend yield for the portfolio stands at 1.77%, with notable contributions from the Schwab U.S. Dividend Equity ETF and Vanguard Total International Stock Index Fund. This income generation is a positive feature, providing a steady cash flow and potential for reinvestment. While dividend-focused strategies can offer stability, they may also limit growth potential. Balancing income with growth is essential for achieving long-term objectives. Consider evaluating the dividend yield against your income needs and reinvestment goals to ensure alignment with your financial plan.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

With a total expense ratio of 0.06%, the portfolio is cost-effective, minimizing the drag on returns. Low fees are crucial for maximizing net returns over time. The Vanguard S&P 500 ETF and Schwab U.S. Dividend Equity ETF offer particularly low costs, enhancing the portfolio's overall efficiency. While keeping costs low is important, it's also essential to ensure that the portfolio aligns with your investment objectives. Regularly reviewing the cost structure and comparing it against performance can help maintain an optimal balance between cost and value.

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