A balanced US-focused portfolio with low diversity and high correlation among assets

Report created on Dec 31, 2024

Risk profile Info

4/7
Balanced
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Diversification profile Info

2/5
Low Diversity
← Less diversification More diversification →

Positions

The portfolio is heavily weighted towards US equity ETFs, with over 99% in stocks and a minimal cash position. The Dimensional US Core Equity Market ETF alone comprises nearly 60% of the portfolio, indicating a significant concentration in a single asset. This composition is less diversified compared to common benchmarks, which typically include a mix of equities, bonds, and other asset classes. A more balanced allocation could help manage risks and enhance potential returns by including different asset types, such as fixed income or international equities, to reduce reliance on US markets.

Growth Info

Historically, the portfolio has shown strong performance with a Compound Annual Growth Rate (CAGR) of 14.84%. However, it experienced a maximum drawdown of -24.26%, indicating vulnerability during market downturns. Compared to benchmarks, this performance is impressive but comes with higher volatility. Understanding past performance helps set realistic expectations, but it's crucial to remember that past success doesn't guarantee future results. Consider strategies to mitigate drawdowns, such as diversifying across asset classes, to stabilize returns during volatile periods.

Projection Info

Forward projections using Monte Carlo simulations, which model potential future outcomes based on historical data, suggest a wide range of possible returns. The median projection indicates substantial growth, with a 50th percentile return of nearly 595%. However, these simulations are based on past market conditions and may not account for future uncertainties. It's important to use these projections as one of many tools in decision-making and not as a definitive prediction. Regularly reviewing and adjusting the portfolio based on changing market conditions can help navigate potential risks.

Asset classes Info

  • Stocks
    100%

The portfolio's allocation is almost entirely within the stock asset class, with negligible cash holdings. This lack of diversification across asset classes exposes the portfolio to higher risk, as it is heavily reliant on the performance of equities. In contrast, diversified portfolios typically include bonds or alternative investments to balance risk and return. Introducing other asset classes could provide stability and reduce volatility, particularly during equity market downturns. Consider reallocating a portion of the portfolio to fixed income or other non-equity assets to enhance diversification.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    9%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    3%
  • Basic Materials
    2%
  • Real Estate
    1%

Sector allocation reveals a strong bias towards technology, accounting for over 32% of the portfolio. This concentration can lead to increased volatility, especially during periods of tech sector instability. Other sectors like financial services and consumer cyclicals are also well-represented, but several sectors have minimal exposure. Compared to common benchmarks, this sector concentration may limit diversification benefits. To reduce sector-specific risks, consider rebalancing to achieve a more even distribution across sectors, ensuring exposure to sectors with different economic drivers.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with over 99% exposure. This limited geographic diversification can increase susceptibility to regional economic downturns. Compared to global benchmarks, which often include significant allocations to Europe, Asia, and emerging markets, this portfolio is under-diversified. Expanding geographic exposure can help mitigate regional risks and capture growth opportunities in other parts of the world. Consider adding international equities or funds to achieve a more balanced global allocation.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    Vanguard Growth Index Fund ETF Shares
    Dimensional US Core Equity Market ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio's assets are highly correlated, particularly among its large holdings like the S&P 500 and NASDAQ-focused ETFs. High correlation means these assets tend to move in the same direction, limiting diversification benefits. In downturns, correlated assets may all decline simultaneously, increasing portfolio risk. To enhance diversification, consider reducing exposure to overlapping assets and introducing investments that are less correlated with the current holdings. This strategy can help manage risk and improve 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's current asset allocation could be optimized further using the Efficient Frontier, a concept that identifies the best possible risk-return ratio. However, this optimization is limited by the high correlation among existing assets, which reduces diversification benefits. Before optimizing, focus on reducing overlap by removing highly correlated assets. Once diversification is improved, adjusting allocations to achieve the most efficient risk-return balance can help maximize returns while managing risk. This approach ensures that the portfolio is aligned with your risk tolerance and investment goals.

Dividends Info

  • Dimensional US Core Equity Market ETF 0.70%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Value Index Fund ETF Shares 1.70%
  • Vanguard Growth Index Fund ETF Shares 0.40%
  • Weighted yield (per year) 0.87%

The portfolio's average dividend yield is 0.87%, with the Vanguard Value Index Fund ETF Shares offering the highest yield at 1.7%. While dividends contribute to total returns, the portfolio's focus on growth-oriented ETFs results in a lower yield compared to more income-focused investments. For investors seeking income, this yield may be insufficient. If income is a priority, consider increasing exposure to dividend-paying stocks or funds. However, be mindful of the trade-off between income generation and growth potential, ensuring alignment with broader investment goals.

Ongoing product costs Info

  • Dimensional US Core Equity Market ETF 0.12%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is low at 0.09%, reflecting cost-effective management. Low costs are beneficial as they enhance net returns over time, aligning well with best practices in portfolio management. Compared to industry averages, this TER is commendably low, ensuring that more of your investment returns are retained. While costs are already optimized, it's important to monitor any changes in fund fees and consider alternatives if costs rise. Maintaining a focus on low-cost investments will continue to support long-term performance.

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