Balanced Diversified Portfolio with Strong US Focus and Potential for Optimized Returns Through Correlation Management

Report created on Nov 10, 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 a well-rounded mix of ETFs with a primary focus on US equities. It includes a variety of SPDR and iShares ETFs, with the SPDR® Portfolio S&P 500 ETF holding the largest share at 24.38%. This composition suggests a balanced investment approach with a tilt towards large-cap US stocks. The presence of international ETFs adds a layer of diversification, albeit at a smaller proportion. This setup is relevant as it provides exposure to both domestic and international markets, supporting steady growth while managing risk.

Growth Info

Historically, the portfolio has shown a commendable performance with a CAGR of 11.76%. A hypothetical initial investment would have grown significantly, although it experienced a maximum drawdown of -35.47%. This performance indicates a robust portfolio capable of delivering returns while also highlighting the potential for substantial short-term losses. Understanding these dynamics is crucial as they reflect the portfolio's ability to recover and grow over time. To further enhance performance, consider maintaining a diversified mix while being prepared for market volatility.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio shows promising future potential. A hypothetical investment could yield significant returns, with the 50th percentile projecting a 302.03% increase. Monte Carlo simulations provide insights into potential outcomes based on historical data, offering a probabilistic view of future performance. This is relevant as it helps set realistic expectations for returns. To capitalize on this potential, continue to monitor market trends and adjust allocations as needed to maintain alignment with investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly composed of stocks, accounting for over 99% of the asset allocation. This heavy stock concentration suggests a focus on growth and long-term capital appreciation. While stocks generally offer higher returns, they also come with increased volatility. It's essential to understand this balance between risk and reward, as it aligns with the portfolio's balanced risk classification. To manage risk, consider introducing more bonds or cash to diversify asset classes further if a more conservative approach is desired.

Sectors Info

  • Technology
    20%
  • Financials
    16%
  • Health Care
    15%
  • Industrials
    13%
  • Consumer Discretionary
    11%
  • Consumer Staples
    6%
  • Telecommunications
    6%
  • Energy
    4%
  • Basic Materials
    4%
  • Real Estate
    4%
  • Utilities
    3%

Sector allocation is diverse, with a strong emphasis on Technology, Financial Services, and Healthcare. Technology leads at 19.65%, reflecting a growth-oriented strategy. This sector diversity is crucial as it spreads risk across different industries, potentially mitigating sector-specific downturns. Understanding sector exposure helps in assessing economic cycles and industry trends. To optimize sector allocation, regularly review and adjust to ensure alignment with market conditions and personal investment goals, avoiding overexposure to any single sector.

Regions Info

  • North America
    80%
  • Europe Developed
    10%
  • Japan
    4%
  • Asia Emerging
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

The geographic composition is heavily skewed towards North America, with 79.59% of assets allocated there. This indicates a strong home bias, which could limit exposure to international growth opportunities. While focusing on the familiar US market can provide stability, global diversification is essential for capturing growth in emerging and developed markets outside North America. To improve geographic balance, consider gradually increasing exposure to underrepresented regions, ensuring a more globally diversified portfolio.

Redundant positions Info

  • iShares Core S&P Small-Cap ETF
    SPDR Russell Small Cap Completeness
    SPDR® Portfolio S&P 600 Small Cap ETF
    iShares Core S&P Mid-Cap ETF
    Invesco QQQ Trust
    SPDR® Portfolio S&P 500 Growth ETF
    SPDR® Portfolio S&P 500 ETF
    SPDR® Portfolio S&P 500 Value ETF
    Invesco S&P 500® Equal Weight ETF
    iShares Core Dividend Growth ETF
    High correlation
  • iShares Core MSCI EAFE ETF
    SPDR S&P World ex US
    High correlation

The portfolio contains several highly correlated assets, particularly among the small-cap and S&P 500-focused ETFs. High correlation means these assets tend to move in the same direction, reducing diversification benefits. Recognizing these correlations is vital as it impacts the overall risk and return profile. To enhance diversification, consider reducing overlapping holdings and introducing assets with lower correlations, which can help stabilize returns and reduce portfolio volatility.

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 considering portfolio optimization, addressing the high correlation among certain assets is crucial. Removing or reducing these overlapping holdings can enhance diversification and potentially improve risk-adjusted returns. Once this is managed, the portfolio can be optimized along the efficient frontier. Moving towards a riskier portfolio may involve increasing equity exposure, while a more conservative approach could include more bonds or cash. The focus should be on aligning the portfolio with personal risk tolerance and financial objectives.

Dividends Info

  • iShares Core Dividend Growth ETF 2.10%
  • Fidelity® MSCI Health Care Index ETF 1.40%
  • iShares Core MSCI EAFE ETF 3.20%
  • iShares Core S&P Mid-Cap ETF 1.20%
  • iShares Core S&P Small-Cap ETF 1.20%
  • Invesco QQQ Trust 0.60%
  • Invesco S&P 500® Equal Weight ETF 1.40%
  • SPDR S&P World ex US 2.70%
  • SPDR® Portfolio Emerging Markets ETF 2.50%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • SPDR Russell Small Cap Completeness 1.30%
  • SPDR® Portfolio S&P 600 Small Cap ETF 1.70%
  • SPDR® Portfolio S&P 500 Growth ETF 0.70%
  • SPDR® Portfolio S&P 500 Value ETF 1.90%
  • Weighted yield (per year) 1.67%

The overall dividend yield for the portfolio stands at 1.67%, with contributions from various ETFs like the iShares Core Dividend Growth ETF and SPDR S&P World ex US. This moderate yield provides a steady income stream, supplementing capital gains. Dividends are an essential component of total returns, especially in volatile markets. Understanding the role of dividends can help manage expectations for income generation. To potentially increase yield, consider reallocating to higher-dividend assets while maintaining diversification.

Ongoing product costs Info

  • iShares Core Dividend Growth ETF 0.08%
  • Fidelity® MSCI Health Care Index ETF 0.08%
  • iShares Core MSCI EAFE ETF 0.07%
  • iShares Core S&P Mid-Cap ETF 0.05%
  • iShares Core S&P Small-Cap ETF 0.06%
  • Invesco QQQ Trust 0.20%
  • Invesco S&P 500® Equal Weight ETF 0.20%
  • SPDR S&P World ex US 0.03%
  • SPDR® Portfolio Emerging Markets ETF 0.07%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • SPDR Russell Small Cap Completeness 0.03%
  • SPDR® Portfolio S&P 600 Small Cap ETF 0.03%
  • SPDR® Portfolio S&P 500 Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 Value ETF 0.04%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio is a low 0.05%, demonstrating cost-efficiency. Low costs are crucial as they directly impact net returns, allowing more of the portfolio's growth to benefit the investor. Recognizing the importance of minimizing expenses aligns with sound investment principles. To maintain cost-effectiveness, continue to prioritize low-cost ETFs and regularly review expense ratios, ensuring that the portfolio remains competitive in terms of fees.

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