Balanced Portfolio with Moderate Diversification and Strong Historic Performance but High Correlation Issues

Report created on Dec 4, 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 a mix of ETFs and individual stocks, with a balanced allocation between stock and bond assets. The largest holding is a bond ETF, which makes up around 32% of the portfolio, providing stability. The rest is predominantly in stocks, with a significant portion in technology. This composition offers a blend of growth and income potential. The portfolio is moderately diversified, which means there’s room for improvement. Ensuring a good balance between asset classes and sectors can help in managing risk and enhancing returns.

Growth Info

Historically, the portfolio has shown impressive performance, with a CAGR of 19.6%. This suggests that an initial investment would have grown substantially over time. However, the maximum drawdown of -36.16% indicates that the portfolio has experienced significant downturns, which is a risk factor to consider. Understanding past performance helps in setting realistic expectations for future returns. It's important to remember that past performance is not indicative of future results, and maintaining a balanced risk approach is key.

Projection Info

Using a Monte Carlo simulation, which runs multiple scenarios to predict future performance, the portfolio shows a wide range of potential outcomes. With a hypothetical initial investment, the 50th percentile projection is an impressive 1,830.43% return, while the 5th percentile still shows a positive 115.71% return. This indicates a high potential for growth, but also highlights the importance of being prepared for various market conditions. Diversifying further could help in smoothing out potential volatility in future performance.

Asset classes Info

  • Stocks
    65%
  • Bonds
    32%
  • Other
    3%

The portfolio includes a mix of asset classes, with stocks making up about 65%, bonds at 31%, and a small allocation to other assets like cash and Bitcoin. This allocation provides a balance between growth and income, with bonds offering stability. However, the small allocation to cash might limit liquidity. A well-balanced asset class distribution can help in achieving a desired risk-return profile. It's crucial to regularly review and adjust the asset mix to align with changing market conditions and personal investment goals.

Sectors Info

  • Technology
    33%
  • Financials
    12%
  • Industrials
    6%
  • Telecommunications
    5%
  • Consumer Discretionary
    3%
  • Health Care
    2%
  • Consumer Staples
    1%
  • Real Estate
    1%
  • Energy
    1%
  • Basic Materials
    1%

Sector-wise, the portfolio is heavily skewed towards technology, which constitutes over 33% of the allocation. While this offers growth potential, it also exposes the portfolio to sector-specific risks. Other sectors like financial services and industrials are present but with much smaller allocations. Diversifying across more sectors could help in mitigating risks associated with any single sector's downturn. A broader sector allocation can provide a more stable return profile and reduce the impact of sector volatility.

Regions Info

  • North America
    51%
  • Europe Developed
    9%
  • Europe Emerging
    4%

Geographically, the portfolio is primarily focused on North America, with over 50% allocation. There is some exposure to Europe and emerging markets, but it remains limited. This concentration in North America might limit the benefits of global diversification. Expanding the geographic allocation could help in capturing growth opportunities in different regions and reducing reliance on any single market. A more globally diversified portfolio can enhance returns and lower risks associated with regional economic fluctuations.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Invesco NASDAQ 100 ETF
    High correlation

The portfolio includes some highly correlated assets, particularly among technology-focused ETFs. This correlation means that these assets tend to move in the same direction, reducing diversification benefits. High correlation can increase volatility and risk during market downturns. To optimize the portfolio, it’s advisable to reduce overlapping assets and seek investments with lower correlations. This can enhance the diversification effect, providing a smoother return profile and reducing the impact of market swings.

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, the focus should be on addressing the high correlation among technology-focused assets. Reducing these overlaps can improve diversification and potentially lower risk. Once this is achieved, the portfolio can be optimized along the efficient frontier to either increase risk for higher returns or decrease risk for more stability. The efficient frontier provides a guide to achieving the best possible return for a given level of risk, helping in aligning the portfolio with personal financial goals.

Dividends Info

  • ASML Holding NV ADR 0.90%
  • Vanguard Total Bond Market Index Fund ETF Shares 3.30%
  • Alphabet Inc Class A 0.20%
  • Global Ship Lease Inc 5.40%
  • Main Street Capital Corporation 7.40%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • SPDR® S&P 600 Small Cap Value ETF 2.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 2.41%

The portfolio's dividend yield stands at 2.41%, with contributions from various holdings such as Main Street Capital Corporation and the Vanguard Total Bond Market Index Fund ETF. Dividends provide a steady income stream, which can be reinvested to compound returns or used as cash flow. A focus on dividend-generating assets can be beneficial for those seeking income. However, it’s important to balance between dividend yield and growth potential, ensuring that the portfolio aligns with long-term financial goals.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Grayscale Bitcoin Trust (BTC) 1.50%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • SPDR® S&P 600 Small Cap Value ETF 0.15%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio is relatively low at 0.08%, which is beneficial for long-term returns. Low costs mean more of the investment returns stay in the portfolio, enhancing compounding over time. However, the Grayscale Bitcoin Trust has a high expense ratio of 1.5%, which could be a drag on returns. It's crucial to keep an eye on investment costs and seek low-cost alternatives where possible. Reducing fees can significantly impact overall portfolio performance, especially over the long term.

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