Balanced Portfolio with High Correlation and Moderate Diversification Across Predominantly US-Based Equity ETFs

Report created on Dec 5, 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 composed entirely of ETFs, each making up 10% of the total. This uniform distribution indicates a balanced approach, but the focus is heavily on equity, which can lead to higher volatility. While ETFs are generally a great way to diversify, having all positions equally weighted might not fully leverage their potential. A more strategic allocation could enhance returns and manage risk better. Consider adjusting the weightings to reflect your investment goals and risk tolerance, possibly reducing exposure to highly correlated assets.

Growth Info

Historically, the portfolio has shown a solid performance with a CAGR of 15.49%, which is impressive. However, the max drawdown of -15.52% suggests that there might be periods of significant volatility. This performance indicates that the portfolio has been able to capture market gains effectively, but it's also subject to downturns. Understanding this volatility can help in setting realistic expectations for future performance. To mitigate potential drawdowns, consider diversifying into less correlated assets or those with different risk profiles.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio shows a promising forward projection. With a 50th percentile return of 660.81% and a 67th percentile of 912.29%, the potential for growth is significant. Monte Carlo simulations use random sampling to predict future outcomes, providing a range of possible returns. This suggests the portfolio could perform well, but it's crucial to remember that these are probabilistic outcomes. To enhance predictability, consider incorporating assets with stable returns to balance potential fluctuations.

Asset classes Info

  • Stocks
    87%
  • Cash
    6%
  • No data
    3%
  • Other
    3%
  • Bonds
    1%

The portfolio is heavily weighted towards stocks, comprising 86.82% of the total. This concentration in equities suggests a growth-oriented strategy, but it also increases exposure to market volatility. A more diversified asset class allocation, including bonds or other fixed-income securities, could provide stability and reduce risk. While stocks offer potential for high returns, balancing them with safer assets can protect against market downturns. Evaluating the current asset class mix in relation to your risk tolerance and investment goals is advisable.

Sectors Info

  • Technology
    33%
  • Consumer Discretionary
    11%
  • Telecommunications
    10%
  • Health Care
    9%
  • Financials
    8%
  • Industrials
    6%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

Sector allocation reveals a strong focus on technology, making up 32.81% of the portfolio. While tech stocks have driven recent market growth, this concentration could pose a risk if the sector underperforms. Other sectors like consumer cyclicals and communication services also have significant weightings. Diversifying across more sectors can help mitigate sector-specific risks. Consider spreading investments more evenly across various sectors to ensure the portfolio is not overly reliant on any single industry, thus enhancing resilience against market fluctuations.

Regions Info

  • North America
    79%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly invested in North America, specifically the US, with 78.97% allocation. This heavy concentration could expose the portfolio to regional risks such as economic downturns or regulatory changes. Although the US market has historically been strong, diversification into other regions can provide a hedge against potential local market downturns. Exploring opportunities in other developed and emerging markets could enhance the portfolio's geographic balance and potentially uncover new growth opportunities.

Redundant positions Info

  • Invesco QQQ Trust
    Schwab U.S. Large-Cap Growth ETF
    Schwab U.S. Large-Cap ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    JPMorgan Nasdaq Equity Premium Income ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains several highly correlated assets, such as the Invesco QQQ Trust and Schwab U.S. Large-Cap ETFs. These correlations suggest that these assets tend to move in the same direction, which might limit diversification benefits. High correlation can lead to increased volatility during market downturns. Reducing overlap by selecting less correlated assets can improve diversification and potentially enhance returns. Consider evaluating the correlation of current holdings and replacing some with assets that have historically shown lower correlation.

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 could be optimized by addressing the high correlation among its assets, which currently limits diversification benefits. By reducing overlap, it may be possible to achieve a more efficient portfolio with better risk-adjusted returns. Moving along the efficient frontier involves balancing risk and return, allowing for a more conservative or aggressive stance as desired. Before optimizing, focus on diversification to build a robust foundation. Then, consider fine-tuning the portfolio to align with specific risk preferences and financial objectives.

Dividends Info

  • JPMorgan Equity Premium Income ETF 7.10%
  • JPMorgan Nasdaq Equity Premium Income ETF 9.40%
  • Invesco QQQ Trust 0.60%
  • Global X NASDAQ 100 Covered Call ETF 11.50%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Schwab U.S. Large-Cap ETF 2.30%
  • Simplify Volatility Premium ETF 16.10%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 5.32%

The portfolio's dividend yield is relatively strong at 5.32%, driven by high-yielding ETFs like the Global X NASDAQ 100 Covered Call ETF and Simplify Volatility Premium ETF. This provides a steady income stream, which can be particularly appealing for those seeking income alongside capital appreciation. However, high yields often come with increased risk, so it's important to assess the sustainability of these dividends. Balancing high-yield assets with more stable, lower-yielding options can ensure a consistent income without excessive risk.

Ongoing product costs Info

  • JPMorgan Equity Premium Income ETF 0.35%
  • JPMorgan Nasdaq Equity Premium Income ETF 0.35%
  • Invesco QQQ Trust 0.20%
  • Global X NASDAQ 100 Covered Call ETF 0.61%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Schwab U.S. Large-Cap ETF 0.03%
  • Simplify Volatility Premium ETF 1.16%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.29%

The portfolio's total expense ratio (TER) is 0.29%, which is quite competitive. Lower costs are beneficial as they leave more returns in the investor's pocket. However, the Simplify Volatility Premium ETF has a notably high expense ratio of 1.16%, which could drag on overall returns. Monitoring costs is crucial as they directly impact net returns. Consider evaluating whether the high-cost funds are delivering the expected value and explore lower-cost alternatives that provide similar exposure. Keeping expenses low is a key strategy for long-term success.

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