A balanced portfolio with high US stock exposure and moderate risk level

Report created on Dec 20, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio consists of four ETFs, each holding 25% of the total investment, all focused on US equities. The composition shows a strong emphasis on large-cap US stocks, which is typical for many balanced portfolios. However, the lack of diversity across asset classes could limit potential risk mitigation. To enhance diversification, consider adding other asset classes such as bonds or international equities. This can help balance the portfolio and reduce exposure to US market volatility.

Growth Info

Historically, the portfolio has performed well with a compound annual growth rate (CAGR) of 14.52%. This indicates robust growth, especially when compared to typical benchmark indices. However, it also experienced a significant maximum drawdown of -32.08%, highlighting its vulnerability during market downturns. While past performance is encouraging, it's important to remember that it doesn't guarantee future results. Consider strategies to manage drawdowns, such as diversifying into less volatile asset classes.

Projection Info

Monte Carlo simulations, which use historical data to predict future outcomes, suggest an annualized return of 15.71%. While this is promising, it's essential to note that simulations are based on past data and may not account for future market changes. The simulations show a wide range of potential outcomes, indicating uncertainty. To prepare for various scenarios, ensure your portfolio remains flexible and adaptable to market shifts.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, with 99.64% in equities and a negligible amount in cash. This concentration in one asset class can lead to higher volatility, especially during market downturns. Compared to benchmark norms, which often include a mix of stocks, bonds, and other assets, this portfolio lacks balance. To improve diversification, consider incorporating fixed-income securities or other asset classes that can provide stability and reduce overall risk.

Sectors Info

  • Technology
    31%
  • Financials
    12%
  • Consumer Discretionary
    12%
  • Health Care
    11%
  • Telecommunications
    10%
  • Industrials
    8%
  • Consumer Staples
    8%
  • Energy
    5%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

The portfolio has a significant concentration in the technology sector, which makes up 31.37% of the total allocation. While technology has been a strong performer historically, this concentration can lead to higher volatility, especially during periods of sector-specific downturns. Other sectors like financial services and consumer cyclicals also have notable allocations. To reduce sector risk, consider spreading investments more evenly across a broader range of industries.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

With 99.01% of the portfolio invested in North America, there is limited geographic diversification. This heavy reliance on the US market can expose the portfolio to regional economic shifts and political risks. Compared to global benchmarks, which typically include more international exposure, this portfolio could benefit from diversifying into other regions. Adding investments from Europe, Asia, or emerging markets can help mitigate regional risks and tap into global growth opportunities.

Redundant positions Info

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

The portfolio includes highly correlated assets, notably the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares. High correlation means these assets tend to move together, which can limit diversification benefits. In a market downturn, the lack of diversification could amplify losses. To enhance risk management, consider replacing one of these assets with a less correlated investment to achieve better diversification and reduce overall portfolio risk.

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 could be optimized using the Efficient Frontier, which identifies the best possible risk-return ratio. However, the presence of highly correlated assets currently limits the potential for optimization. Before attempting to optimize, focus on reducing overlap by replacing correlated assets with those that provide better diversification. Once the portfolio is more diversified, use the Efficient Frontier to fine-tune the allocation, balancing risk and return effectively.

Dividends Info

  • Invesco QQQ Trust 0.40%
  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard S&P 500 ETF 0.90%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.58%

The portfolio's overall dividend yield is 1.58%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.7%. Dividends provide a steady income stream and can be a valuable component of total returns, especially in volatile markets. For investors seeking income, consider increasing exposure to dividend-focused investments or exploring other income-generating assets. However, ensure that any changes align with your overall investment strategy and risk tolerance.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • 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) 0.08%

The total expense ratio (TER) of the portfolio is 0.08%, which is impressively low and supports better long-term performance. Low costs mean more of your returns stay in your pocket, compounding over time. This aligns well with best practices for cost efficiency in investing. Continue to monitor expenses and consider low-cost alternatives if any high-fee assets are added in the future. Maintaining a focus on cost efficiency will help optimize returns over time.

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