Balanced Moderately Diversified Portfolio with Strong Historical Performance and High Correlation Between Key Assets

Report created on Dec 2, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of five ETFs, with the SPDR® Portfolio S&P 500 ETF taking up 50% of the allocation. This is a balanced portfolio with a moderate diversification score. The portfolio is heavily weighted towards equities, with a small allocation in cash and other assets. This composition suggests a focus on growth with some risk moderation. While the portfolio is diversified across multiple ETFs, it is heavily concentrated in U.S. equities, which could lead to vulnerability if the U.S. market underperforms. Consider exploring additional diversification opportunities to balance this concentration.

Growth Info

Historically, the portfolio has shown a robust performance with a CAGR of 14.31%, indicating strong growth over time. However, it also experienced a maximum drawdown of -24.84%, highlighting potential vulnerability during market downturns. The performance is largely driven by a few critical days, with 90% of returns occurring over just 21 days. This suggests that the portfolio is susceptible to market timing risks. To enhance stability, consider strategies that may provide more consistent returns over time, potentially reducing reliance on a few high-return days.

Projection Info

Using a Monte-Carlo simulation with 1,000 iterations, the portfolio's future performance was projected, assuming a hypothetical initial investment. This approach provides a range of possible outcomes, highlighting the inherent uncertainty in future returns. The median projection indicates a 50th percentile return of 451.59%, with a 67th percentile return of 601.32%. Nearly all simulations returned positive results, suggesting a high likelihood of continued growth. However, the 5th percentile projection of 83.57% underscores potential downside risks. Regularly reassessing risk tolerance and market conditions can help align future expectations with investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly invested in stocks, accounting for nearly 100% of the allocation. This heavy tilt towards equities indicates a focus on capital appreciation. While stocks generally offer higher returns, they also bring higher volatility. The minimal cash and other asset allocations suggest limited liquidity and diversification benefits. To mitigate risks associated with stock market fluctuations, consider incorporating other asset classes like bonds or real estate. This could enhance diversification and potentially stabilize returns, especially during periods of market turbulence.

Sectors Info

  • Technology
    29%
  • Financials
    13%
  • Health Care
    12%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    8%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    1%

Sector-wise, the portfolio is heavily weighted towards technology, financial services, and healthcare. These sectors collectively make up a significant portion of the allocation, indicating a growth-oriented strategy. While these sectors have historically performed well, they also carry specific risks, such as regulatory changes or technological disruptions. The lower allocations in sectors like utilities and real estate may limit defensive capabilities. To balance sector exposure, consider adjusting allocations to include more defensive sectors, which can provide stability during economic downturns.

Regions Info

  • North America
    84%
  • Europe Developed
    9%
  • Japan
    4%
  • Asia Emerging
    2%
  • Asia Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with 84.38% of assets allocated here. This concentration reflects a strong home bias, which could expose the portfolio to regional economic risks. While there is some exposure to developed Europe and Japan, emerging markets are underrepresented. This limited global diversification may reduce the portfolio's ability to capture growth opportunities in other regions. To enhance geographic diversification, consider increasing exposure to international markets, which could provide a hedge against regional economic downturns.

Redundant positions Info

  • Vanguard Total World Stock Index Fund ETF Shares
    SPDR® Portfolio S&P 500 ETF
    High correlation

Within the portfolio, there is a high correlation between the Vanguard Total World Stock Index Fund ETF Shares and the SPDR® Portfolio S&P 500 ETF. This suggests that these assets tend to move in tandem, offering limited diversification benefits. High correlation can increase portfolio risk, as adverse market movements may impact multiple holdings simultaneously. To improve diversification, consider reducing overlapping positions and incorporating assets with lower correlations. This strategy can help mitigate risk and enhance the portfolio's resilience to market 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.

The portfolio optimization chart suggests focusing on reducing overlapping assets before considering further optimization. By addressing high correlations, the portfolio can achieve better diversification and potentially lower risk. Moving along the efficient frontier, one can adjust the portfolio to be riskier by increasing equity exposure or more conservative by incorporating bonds or other asset classes. This strategic shift can help align the portfolio with specific risk appetites and financial goals, ensuring a well-balanced investment approach.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Vanguard International Dividend Appreciation Index Fund ETF Shares 2.00%
  • Vanguard Total World Stock Index Fund ETF Shares 1.80%
  • Weighted yield (per year) 1.58%

The portfolio's overall dividend yield is 1.58%, with individual ETFs providing varying yields. The Schwab U.S. Dividend Equity ETF offers the highest yield at 3.3%, while others like the Invesco NASDAQ 100 ETF offer lower yields at 0.6%. This suggests a blend of growth and income strategies, with a slight tilt towards growth. While dividends can provide a steady income stream, the overall yield is relatively modest. To enhance income potential, consider increasing allocations to higher-yielding assets or exploring dividend-focused strategies that align with risk tolerance.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard International Dividend Appreciation Index Fund ETF Shares 0.15%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio is 0.07%, which is relatively low and cost-effective. This suggests an efficient allocation, minimizing the impact of fees on overall returns. The individual ETF costs vary, with the SPDR® Portfolio S&P 500 ETF having the lowest at 0.02% and others like the Vanguard International Dividend Appreciation Index Fund ETF Shares at 0.15%. Keeping investment costs low is crucial for maximizing net returns. Continue to monitor expense ratios and consider reallocating to lower-cost options if they align with investment goals and risk tolerance.

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