Balanced Risk Portfolio with Low Diversity and Strong Dividend Focus
Report created on Aug 11, 2024Risk profile
4/7
Diversification profile
2/5
Positions
-
SC Schwab U.S. Dividend Equity ETF
SCHD - US8085247976 100.00%
The portfolio is entirely invested in the Schwab U.S. Dividend Equity ETF, making it highly concentrated. This lack of diversification means that the portfolio's performance is heavily reliant on the success of this single ETF. While this can be beneficial if the ETF performs well, it also exposes the portfolio to higher risk if the ETF underperforms. A more diversified portfolio could help mitigate risk by spreading investments across different asset classes and sectors.
Growth
Historically, the portfolio has shown a strong performance with a compound annual growth rate (CAGR) of 12.42%. However, it also experienced a significant maximum drawdown of -33.37%, indicating vulnerability during market downturns. The portfolio's returns are concentrated in a few days, which is typical for equity-heavy portfolios. This highlights the importance of staying invested to capture these high-return days and avoid timing the market, which can be challenging and risky.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The simulation assumes a hypothetical initial investment and provides a range of possible outcomes. The median outcome suggests a substantial growth of 374.6%, while even the lower 5th percentile still shows a positive return of 79.41%. This indicates a promising potential for growth, but it's important to remember that these are probabilistic outcomes and not guarantees.
Asset classes
- Stocks 100%
The portfolio is heavily weighted in stocks, comprising 99.91% of the total allocation, with a negligible amount in cash. This stock-heavy allocation aligns with the portfolio's balanced risk classification but also means it's subject to equity market volatility. To balance risk and potential returns, it's generally advisable to include other asset classes like bonds, which can provide stability and income during market fluctuations.
Sectors
- Financials 20%
- Health Care 15%
- Consumer Staples 13%
- Energy 13%
- Industrials 12%
- Consumer Discretionary 11%
- Technology 11%
- Telecommunications 4%
- Basic Materials 2%
Sector allocation is diverse, with significant exposure to financial services, healthcare, and consumer defensive sectors. However, the heavy reliance on these sectors could lead to sector-specific risks. While these sectors can provide stability and growth, diversifying further into other sectors could help mitigate potential downturns in any single sector. A more balanced sector allocation can enhance resilience against sector-specific volatility.
Regions
- North America 99%
- Europe Developed 1%
Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.36% of assets allocated there. This focus on a single region may limit exposure to global growth opportunities and increase vulnerability to North American economic downturns. Diversifying geographically by including investments in other regions can help capture growth in different markets and reduce regional risk.
Dividends
- Schwab U.S. Dividend Equity ETF 3.40%
- Weighted yield (per year) 3.40%
The portfolio boasts a healthy dividend yield of 3.4%, which can provide a steady income stream. This is a positive aspect for investors seeking regular income. However, it's important to ensure that the pursuit of dividends doesn't come at the expense of diversification. Balancing dividend income with growth potential and risk management is crucial for long-term success.
Ongoing product costs
- Schwab U.S. Dividend Equity ETF 0.06%
- Weighted costs total (per year) 0.06%
The portfolio's costs are low, with a total expense ratio of 0.06%. This is advantageous as lower costs mean more of the portfolio's returns are retained by the investor. Keeping investment costs low is a key principle for maximizing net returns over time. It's important to regularly review and ensure that costs remain competitive as part of an ongoing portfolio management strategy.
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