Balanced Portfolio with High US Equity Exposure and Moderate Risk with Low Diversification and Overlapping Asset Classes

Report created on Nov 26, 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 is heavily concentrated in US equities, with a significant portion allocated to the Vanguard S&P 500 ETF and Invesco NASDAQ 100 ETF. This composition indicates a strong focus on large-cap stocks, with a smaller allocation to bonds via the Vanguard Total Bond Market Index Fund. While this setup can offer growth potential, it also exposes the portfolio to market volatility. To enhance diversification, consider incorporating more varied asset classes or international equities. This can help balance the risk and potentially smooth returns over time.

Growth Info

Historically, the portfolio has delivered an impressive CAGR of 14.91%, reflecting its strong equity focus. However, this growth comes with a notable max drawdown of -24.69%, indicating potential vulnerability during market downturns. The high concentration in a few ETFs means that a small number of days drive the bulk of returns. To mitigate volatility and improve resilience, consider diversifying into less correlated assets. This approach can help stabilize returns and reduce dependency on a handful of high-performing days.

Projection Info

Using a Monte Carlo simulation, which models potential future returns based on historical data, the portfolio shows a median growth of 381.45%. While this suggests solid potential, the simulation also highlights variability, with a 5th percentile outcome of 77.28% and a 67th percentile of 524.73%. The majority of simulations yield positive returns, but the reliance on a concentrated equity exposure may increase risk. To enhance future performance, consider diversifying into different asset classes or regions, potentially reducing downside risks.

Asset classes Info

  • Stocks
    95%
  • Bonds
    5%

The portfolio is predominantly invested in stocks (94.92%), with a minor allocation to bonds (4.94%). This heavy skew towards equities indicates a growth-oriented strategy but also introduces higher volatility. The limited bond exposure might not provide sufficient cushioning during market downturns. To achieve a more balanced risk-return profile, consider increasing the bond allocation or exploring alternative asset classes. Diversifying across asset classes can help reduce overall portfolio volatility and provide more stable returns.

Sectors Info

  • Technology
    31%
  • Financials
    11%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    7%
  • Consumer Staples
    7%
  • Energy
    4%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The sector allocation is heavily weighted towards Technology (31.40%), followed by Financial Services and Consumer Cyclicals. This concentration in a few sectors can lead to increased risk if these sectors underperform. While the tech sector has been a strong performer, relying too heavily on it could expose the portfolio to sector-specific downturns. To mitigate this risk, consider diversifying into underrepresented sectors such as Utilities or Real Estate. A more balanced sector allocation can help stabilize returns and reduce sector-specific risks.

Regions Info

  • North America
    94%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly focused on North America (94.07%), with minimal exposure to other regions. This concentration limits the benefits of geographic diversification, leaving the portfolio vulnerable to regional economic downturns. To enhance diversification, consider allocating a portion of the portfolio to international markets, such as Europe or Asia. This approach can provide exposure to different economic cycles and reduce the impact of regional volatility on the overall portfolio performance.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly among the Vanguard S&P 500 ETF, Invesco NASDAQ 100 ETF, and Vanguard Total Stock Market Index Fund. This overlap reduces diversification benefits, as these assets tend to move in tandem. To improve diversification, consider replacing some of these overlapping positions with assets that have lower correlations. This can help reduce risk and enhance the portfolio’s ability to withstand market fluctuations by ensuring that not all assets react similarly to economic events.

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.

Before optimizing, addressing the overlapping assets in the portfolio is crucial. By reducing these overlaps, diversification can be improved, providing better risk management. The portfolio can be adjusted along the efficient frontier to achieve a riskier or more conservative stance. A riskier portfolio would involve increasing equity exposure or exploring growth-focused assets, while a more conservative approach would involve increasing bonds or other low-risk assets. The focus should be on aligning the portfolio with individual risk tolerance and financial goals.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.52%

The portfolio's dividend yield stands at 1.52%, with the Schwab U.S. Dividend Equity ETF and Vanguard Total Bond Market Index Fund contributing the most. While this yield provides some income, it may not be sufficient for income-focused investors. To enhance dividend income, consider increasing exposure to higher-yielding assets or funds. However, it's essential to balance the pursuit of income with overall portfolio risk and growth potential. Ensuring a diversified income stream can help maintain stability during periods of market volatility.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Invesco NASDAQ 100 ETF 0.15%
  • 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) 0.06%

The portfolio's overall cost is relatively low, with a total expense ratio (TER) of 0.06%. This cost efficiency is beneficial, as lower expenses can enhance net returns over time. However, it's crucial to ensure that cost savings do not come at the expense of diversification and risk management. While it's important to keep costs low, prioritize maintaining a well-diversified portfolio that aligns with investment goals. Regularly reviewing and adjusting the portfolio can help balance costs with the need for diversification and risk control.

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