Balanced Portfolio with Low Diversification and High Concentration in US Stocks

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 consists of four main positions, with a significant concentration in the Vanguard S&P 500 ETF, making up over 60% of the allocation. This indicates a strong reliance on large-cap U.S. equities. The Global X NASDAQ 100 Covered Call ETF and Ford Motor Company further contribute to the concentration in U.S. stocks. The Vanguard Total Stock Market Index Fund ETF Shares adds a broader market exposure, but its small allocation limits diversification benefits. Overall, the portfolio's composition suggests a focus on U.S. equities, with minimal diversification across other asset classes or regions.

Growth Info

Historically, the portfolio has delivered a solid compound annual growth rate (CAGR) of 12.38%, reflecting strong performance in U.S. equities. However, it experienced a significant maximum drawdown of -32.79%, indicating vulnerability to market downturns. The fact that 90% of returns were concentrated in just 30 days highlights the portfolio's reliance on specific market movements for performance. While the historical performance is impressive, the high drawdown suggests a need for diversification to mitigate risk during volatile periods.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. Assuming a hypothetical initial investment, the simulation showed a median return of 248.79% with a 67th percentile return of 428.08%. However, there is a 5th percentile scenario of a -10.42% return, indicating potential downside risk. The simulation's annualized return of 12.05% aligns with historical performance, but the variability in outcomes underscores the importance of diversification to manage risk and achieve more stable returns.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, accounting for 99.93% of the allocation, with a minimal cash position. This high equity exposure suggests a focus on capital growth, but it also increases the portfolio's sensitivity to market fluctuations. The lack of diversification across asset classes limits the ability to cushion against downturns. To reduce risk, consider incorporating more diverse asset classes, such as bonds or alternative investments, to provide balance and stability to the portfolio.

Sectors Info

  • Technology
    32%
  • Consumer Discretionary
    22%
  • Telecommunications
    9%
  • Financials
    9%
  • Health Care
    9%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    2%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation is heavily skewed towards technology, consumer cyclicals, and communication services, which together make up a significant portion of the portfolio. This concentration exposes the portfolio to sector-specific risks, particularly if these industries face downturns. While these sectors have driven recent growth, diversification across a broader range of industries could enhance stability. Balancing exposure to other sectors like healthcare, financial services, and consumer defensives can help mitigate sector-specific risks and improve overall portfolio resilience.

Regions Info

  • North America
    79%

Geographically, the portfolio is predominantly focused on North America, with over 78% of assets allocated to this region. This concentration limits exposure to international markets, potentially missing out on growth opportunities in other regions. While the U.S. market has shown strong performance, diversifying geographically can reduce risk and enhance returns by capturing growth in emerging and developed markets outside North America. Consider expanding exposure to regions like Europe, Asia, and Latin America to achieve a more balanced geographic allocation.

Redundant positions Info

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

The portfolio exhibits high correlations between the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares, indicating overlapping exposure to similar market segments. This lack of diversification reduces the potential benefits of holding multiple assets, as they tend to move in tandem. To enhance diversification, consider reducing exposure to highly correlated assets and introducing investments with lower correlations. This approach can help achieve a more balanced risk-return profile and reduce the impact of market volatility on the 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 optimization chart indicates opportunities for improvement by addressing high correlations and concentration issues. Prioritize diversification before optimizing along the efficient frontier. Reducing exposure to overlapping assets can enhance diversification, potentially lowering risk without sacrificing returns. To achieve a riskier portfolio, increase equity exposure, while a more conservative approach involves adding bonds or cash. Focus on creating a balanced portfolio by considering both risk and return, ensuring alignment with personal financial goals and risk tolerance.

Dividends Info

  • Ford Motor Company 7.30%
  • Global X NASDAQ 100 Covered Call ETF 11.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 4.13%

The portfolio has a decent dividend yield of 4.13%, supported by high yields from the Global X NASDAQ 100 Covered Call ETF and Ford Motor Company. These dividends provide a steady income stream, which can be attractive for income-focused investors. However, the reliance on a few high-yielding assets also poses a risk if these companies face financial difficulties. To maintain a stable income, consider diversifying the dividend sources by including a broader range of dividend-paying stocks or funds across different sectors and regions.

Ongoing product costs Info

  • Global X NASDAQ 100 Covered Call ETF 0.61%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.15%

The total expense ratio (TER) of the portfolio is relatively low at 0.15%, with the Vanguard ETFs contributing minimal costs. However, the Global X NASDAQ 100 Covered Call ETF has a higher expense ratio of 0.61%, which could impact overall returns. Keeping investment costs low is crucial for maximizing net returns. Consider evaluating the cost-effectiveness of each position and exploring lower-cost alternatives if available. By minimizing expenses, the portfolio can potentially achieve better performance over the long term.

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