A balanced portfolio with strong U.S. focus and low diversification across sectors

Report created on Jan 3, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio consists of five positions, heavily weighted towards U.S. equities, with ETFs making up 65% and mutual funds 35%. This composition is typical for investors seeking growth through equity exposure. However, it lacks diversification, with a strong concentration in large-cap U.S. stocks. This could limit its ability to mitigate risks associated with market fluctuations. To enhance diversification, consider adding exposure to other asset classes like bonds or international equities, which can provide stability and potential growth from different economic conditions.

Growth Info

Historically, the portfolio has shown impressive performance with a CAGR of 14.32%, outperforming many benchmarks. However, it experienced a significant max drawdown of -33.64%, indicating vulnerability during market downturns. This performance highlights the potential for high returns but also underscores the risks involved. While past performance is not indicative of future results, maintaining a balance between growth and risk management is crucial. Consider strategies to reduce volatility, such as diversifying into less correlated assets or sectors, to protect against future downturns.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes, with a median return of 504.87%. This method uses historical data to model future scenarios, providing insights into possible returns and risks. However, it is important to note that these simulations are based on past data and cannot predict future market conditions with certainty. To align with your risk tolerance and goals, regularly review your portfolio and adjust allocations as needed, ensuring it remains resilient to various market environments.

Asset classes Info

  • Stocks
    100%

The portfolio's asset class allocation is overwhelmingly concentrated in stocks, accounting for 99.58%, with a negligible cash position. This heavy equity focus can drive growth but also increases exposure to market volatility. Compared to a balanced benchmark, this asset allocation lacks the diversification benefits typically offered by bonds or alternative investments. To better manage risk and enhance potential returns, consider adding fixed-income securities or other asset classes, which can provide income and stability during market fluctuations.

Sectors Info

  • Technology
    29%
  • Financials
    14%
  • Health Care
    12%
  • Telecommunications
    9%
  • Consumer Discretionary
    8%
  • Industrials
    8%
  • Consumer Staples
    7%
  • Energy
    6%
  • Consumer Discretionary
    4%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

The sector allocation shows a significant concentration in technology at 28.74%, followed by financial services and healthcare. This concentration can lead to higher volatility, especially during sector-specific downturns. Compared to broader benchmarks, the portfolio is heavily skewed towards tech, which can be both an opportunity and a risk. To reduce potential volatility, consider reallocating some investments into underrepresented sectors like utilities or real estate, which can offer more stable returns and improve overall diversification.

Regions Info

  • North America
    99%

Geographically, the portfolio is almost entirely focused on North America, with 99.44% exposure, limiting its diversification benefits. This concentration can make it vulnerable to regional economic downturns or policy changes. Compared to global benchmarks, the lack of international exposure may restrict access to growth opportunities in emerging markets or developed economies outside the U.S. To enhance geographic diversification, consider adding international equities or funds, which can provide exposure to different growth drivers and reduce regional risks.

Redundant positions Info

  • Schwab S&P 500 Index Fund
    Schwab Fundamental US Large Company Index Fund
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio's assets show high correlation, particularly among the S&P 500-related funds. This means that these assets tend to move together, reducing the diversification benefits during market downturns. High correlation can lead to increased portfolio volatility, as losses in one asset may not be offset by gains in another. To improve diversification, consider replacing some of the highly correlated assets with less correlated ones, such as international equities or bonds, which can help stabilize returns and reduce overall 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's current asset allocation could potentially be optimized using the Efficient Frontier, a concept that seeks the best possible risk-return ratio. However, before focusing on optimization, it's crucial to address the high correlation among assets, which limits diversification benefits. By replacing overlapping assets with more diverse options, you can improve the portfolio's efficiency. Once diversification is enhanced, employ optimization strategies to balance risk and return, ensuring the portfolio aligns with your investment goals and risk tolerance.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.30%
  • Schwab S&P 500 Index Fund 1.20%
  • Weighted yield (per year) 1.44%

The portfolio's overall dividend yield is 1.44%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.6%. Dividends can provide a steady income stream and help cushion against market volatility. However, the portfolio's focus on growth-oriented assets results in a lower overall yield. For those seeking more income, consider increasing exposure to dividend-focused funds or stocks. This can enhance cash flow and potentially provide more stability during periods of market uncertainty, complementing the growth potential of the current holdings.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Schwab Fundamental US Large Company Index Fund 0.25%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Schwab S&P 500 Index Fund 0.02%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio (TER) is impressively low at 0.07%, which is beneficial for long-term performance. Lower costs mean more of your investment returns are retained, enhancing compounding over time. Compared to industry averages, this portfolio's costs are well-managed, aligning with best practices for cost efficiency. Continue to monitor and ensure that any new investments maintain or improve this cost structure. Consider replacing higher-cost funds with lower-cost alternatives, if available, to further optimize the portfolio's cost efficiency.

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